Transport firms’ inefficiency and managerial optimism: A stochastic frontier analysis

Sami Jarboui, Pascal Forget and Younes Boujelbene

Journal of Behavioral and Experimental Finance, 2014, vol. 3, issue C, 41-51

Abstract: This paper presents an original essay that explains the correlation between transport firms’ technical efficiency and managerial optimism. We initiate a debate concerning the potential role of Chief Executive Officers’ (CEO) irrationalities in explaining the inefficiency of public transport operators, such as the shortfall between the optimal production function and the observed production level. Stochastic frontier analysis (SFA) methods are applied to our sample over a twelve-year period from 2000 to 2011, where we aim to detect the potential effect of a well-documented bias in behavioral economic and finance theory: the managerial optimism bias. Using two proxies of managerial optimism based on the 2005 work of Malmendier and Tate as well as following recommendations of cognitive psychology and using an SFA approach, we find strong evidence of the negative impact of CEOs’ optimism bias on transport firms’ technical efficiency, meaning that managerial optimism decreases transport firms’ technical efficiency.

Keywords: Transport firm; Technical efficiency; Stochastic frontier analysis; Managerial optimism (search for similar items in EconPapers)
JEL-codes: C14 C67 C83 D24 L92 N70 R40 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:3:y:2014:i:c:p:41-51

DOI: 10.1016/j.jbef.2014.07.003

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