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What were they thinking? Reports from interviews with senior finance executives in the lead-up to the GFC

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  • Les Coleman
  • Sean Pinder

Abstract

The impact of the Global Financial Crisis (GFC) on capital markets has demonstrated that corporate stakeholders (including shareholders, lenders and independent board members) need to be far more aware of the decision-making processes followed by corporate executives. Gaining insight into these processes is difficult at any time, yet attempting to uncover (in any meaningful sense) how executives reached critical decisions in the lead-up to the GFC is almost impossible in hindsight. This article overcomes this problem in that it reports the results of interviews conducted with senior Australian finance executives in the lead-up to the GFC. These interviews were designed to elicit granular explanations for the rationale underpinning major corporate finance decisions, and their timing and subjects provide a unique ex ante profile of the perceptions of senior executives in large firms as the GFC developed. The most significant finding is that the corporate executives shared a decision framework with core features similar to those of financiers that are thought to have contributed to the GFC, particularly permanently increasing asset prices, easy liquidity and safety in powerful risk management techniques. Our findings have strong implications for independent board members who - at least in hindsight - failed to identify and mitigate risks from systemic reliance on appreciating markets and the inevitability of mean reversion.

Suggested Citation

  • Les Coleman & Sean Pinder, 2010. "What were they thinking? Reports from interviews with senior finance executives in the lead-up to the GFC," Applied Financial Economics, Taylor & Francis Journals, vol. 20(1-2), pages 7-14.
  • Handle: RePEc:taf:apfiec:v:20:y:2010:i:1-2:p:7-14
    DOI: 10.1080/09603100903262533
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    Cited by:

    1. Alessandra Capezio & Astghik Mavisakalyan, 2016. "Women in the boardroom and fraud: Evidence from Australia," Australian Journal of Management, Australian School of Business, vol. 41(4), pages 719-734, November.
    2. Georg V. Lehecka, 2014. "Have food and financial markets integrated?," Applied Economics, Taylor & Francis Journals, vol. 46(18), pages 2087-2095, June.
    3. Lunn, Pete, 2011. "The Role of Decision-Making Biases in Ireland's Banking Crisis," Papers WP389, Economic and Social Research Institute (ESRI).
    4. Coleman, Les, 2014. "Why finance theory fails to survive contact with the real world: A fund manager perspective," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 25(3), pages 226-236.
    5. Argandoña, Antonio, 2012. "Three ethical dimensions of the financial crisis," IESE Research Papers D/944, IESE Business School.
    6. Helena Liu, 2017. "The Masculinisation of Ethical Leadership Dis/embodiment," Journal of Business Ethics, Springer, vol. 144(2), pages 263-278, August.

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