CEO optimism and forced turnover

T. Colin Campbell, Michael Gallmeyer, Shane Johnson, Jessica Rutherford and Brooke W. Stanley

Journal of Financial Economics, 2011, vol. 101, issue 3, 695-712

Abstract: We show theoretically that optimism can lead a risk-averse Chief Executive Officer (CEO) to choose the first-best investment level that maximizes shareholder value. Optimism below (above) the interior optimum leads the CEO to underinvest (overinvest). Hence, if boards of directors act in the interests of shareholders, CEOs with relatively low or high optimism face a higher probability of forced turnover than moderately optimistic CEOs face. Using a large sample of turnovers, we find strong empirical support for this prediction. The results are consistent with the view that there is an interior optimum level of managerial optimism that maximizes firm value.

Keywords: CEO; turnover; Optimism; Overconfidence; Managerial; biases (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (247)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:101:y:2011:i:3:p:695-712

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