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Do optimistic managers destroy firm value?

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  • Ben Mohamed, Ezzeddine
  • Garoui, Nassreddine
  • Naoui, Kamel

Abstract

This paper investigates the effect of managerial optimism on firm value. Using Stochastic Frontier Analysis approach, we prove that managerial optimism can largely explain corporate inefficiency among NYSE firms between 1999–2011. We also find evidence that suggests that ownership structure and corporate governance can mitigate the effect of managerial optimism on firm value.

Suggested Citation

  • Ben Mohamed, Ezzeddine & Garoui, Nassreddine & Naoui, Kamel, 2020. "Do optimistic managers destroy firm value?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 26(C).
    • Handle: RePEc:eee:beexfi:v:26:y:2020:i:c:s2214635019300760
    DOI: 10.1016/j.jbef.2020.100292
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    References listed on IDEAS

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    1. Michael C. Jensen, 2010. "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 43-58, January.
    2. J B Heaton, 2002. "Managerial Optimism and Corporate Finance," Financial Management, Financial Management Association, vol. 31(2), Summer.
    3. Grzegorz Pawlina & Luc Renneboog, 2005. "Is Investment‐Cash Flow Sensitivity Caused by Agency Costs or Asymmetric Information? Evidence from the UK," European Financial Management, European Financial Management Association, vol. 11(4), pages 483-513, September.
    4. Eric Van den Steen, 2004. "Rational Overoptimism (and Other Biases)," American Economic Review, American Economic Association, vol. 94(4), pages 1141-1151, September.
    5. Mohamed, Ezzeddine & Fairchild, Richard & Bouri, Abdelfettah, 2014. "Investment cash flow sensitivity under managerial optimism: New evidence from NYSE panel data firms," Journal of Economics, Finance and Administrative Science, Universidad ESAN, vol. 19(36), pages 11-18.
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    Citations

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    Cited by:

    1. Ben Mohamed, Ezzeddine, 2021. "Managerial optimism, investment cash flow sensitivity and agency costs: Evidence from NYSE panel data firms," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    2. Kim, Seonhyeon & Thompson, Ephraim Kwashie & Kim, Changki, 2023. "Credit rating and managerial behavior in investment decision making: Evidence from the Korean market," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).

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    More about this item

    Keywords

    Managerial optimism; Firm value; Efficiency; Corporate governance; Ownership structure;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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