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Firm optimism and pessimism

Ruediger Bachmann () and Steffen Elstner ()

European Economic Review, 2015, vol. 79, issue C, 297-325

Abstract: This paper explores the question of whether firms have systematic expectation biases. Using microdata from the West German manufacturing subset of the IFO Business Climate Survey, we infer quarterly production growth rates at the firm level. We then combine this information with production growth expectations over a quarterly horizon to construct quantitative firm-specific expectation errors. Our findings show that at most one-third of our firms systematically over- or underpredict their production growth one-quarter ahead. Our findings further show that larger and exporting firms tend to have more realistic expectations, while firms with higher leverage are more prone to expectations that are biased towards optimism.

Keywords: Survey data; Expectation errors; Expectation biases; Firm data (search for similar items in EconPapers)
JEL-codes: E20 E22 (search for similar items in EconPapers)
Date: 2015
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Related works:
Working Paper: Firms' Optimism and Pessimism (2013) Downloads
Working Paper: Firms' Optimism and Pessimism (2013) Downloads
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