Managerial Optimism, Investment Efficiency, and Firm Valuation

I-Ju Chen () and Shin-Hung Lin
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I-Ju Chen: Yuan Ze University, Taiwan
Shin-Hung Lin: Yuan Ze University, Taiwan

Multinational Finance Journal, 2013, vol. 17, issue 3-4, 295-340

Abstract: This study investigates the relationship between managerial optimism, investment efficiency and firm valuation. This study follows the Campbell’s measurement for managerial optimism and investigates the influences of the different levels of managerial optimism on improving investment efficiency and firm value when firms tend to under-invest or over-invest. The results indicate that an under-invested firm with a CEO who has a higher level of managerial optimism can improve the firm’s investment efficiency by reducing the degree of underinvestment, which further increases the firm’s value. However, when firms tend to overinvest, there is insufficient evidence to show that a firm with a lower level of CEO managerial optimism will effectively improve the firm’s investment efficiency and increase firm value by reducing the degree of overinvestment.The results generated in this study help scholars and practitioners understand how managerial optimism affects the investment efficiency of firms

Keywords: managerial optimism; investment efficiency; overinvestment; underinvestment (search for similar items in EconPapers)
JEL-codes: G02 G30 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:mfj:journl:v:17:y:2013:i:3-4:p:295-340

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