Research note: how the financial styles of managers impact financial and valuation metrics

Abstract

Purpose

The purpose of this paper is to reveal a new contribution to behavioural finance that focuses on individuals rather than groups.

Design/methodology/approach

Research is based on field studies with executives utilizing an assessment instrument to identify and measure their financial traits. The approach to the topic is to present the underlying model of financial traits and show how they add another dimension to behavioural finance approaches.

Findings

The model identifies three financial styles, each of which comprises three financial signatures. Each of the financial signatures leads to characteristic financial decisions with specific valuation outcomes.

Research limitations/implications

The research is in its early stages. It requires larger sample sizes and needs to be conducted across industries and different cultures. Its implications are that can be predicted the financial performance and valuation of companies by knowing the financial styles of their leaders and managers, and also their financial cultures.

Practical implications

Practical implications are that this work can be used as a new method for valuing companies, for stock analysis and for portfolio analysis and valuation. It can also be used as a basis for M&A, to assess the financial alignment of companies conducting M&A and the likely chances of success.

Originality/value

The paper shows a totally new way to assess the valuation outcomes of individuals, teams and companies based purely on their behavioural financial traits.

Citation

Ted Prince, E. (2008), "Research note: how the financial styles of managers impact financial and valuation metrics", Review of Accounting and Finance, Vol. 7 No. 2, pp. 193-205. https://doi.org/10.1108/14757700810874155