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Financially Constrained Firms: The Impact of Managerial Optimism and Diversification on Firms’ Excess Value: The Case of Greece

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  • Dimitrios Maditinos
  • Alexandra Tsinani
  • Zeljko Sevic
  • Jelena Stankeviciene

Abstract

Diversification as an underlying factor of financial constraints can create several costs. Diversified firms have the tendency to over-invest in lines of business which display poor investment opportunities. Diversification indeed reduces value. This loss in value is found mainly for firms of all sizes having managers with a higher level of optimism. The link between optimism and corporate investment is more pronounced in financially constraint firms. When the wedge between the internal and external cost of funds increases, a firm is more financially constrained. Analysing a sample of listed companies in Greece it is found that the higher the managerial optimism, the lower the excess value of a firm.

Suggested Citation

  • Dimitrios Maditinos & Alexandra Tsinani & Zeljko Sevic & Jelena Stankeviciene, 2019. "Financially Constrained Firms: The Impact of Managerial Optimism and Diversification on Firms’ Excess Value: The Case of Greece," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 3-15.
    • Handle: RePEc:ers:journl:v:xxii:y:2019:i:1:p:3-15
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    Managerial optimism; excess value; investment; financial constraints;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • 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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