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

Dimitrios Maditinos, Alexandra Tsinani, Zeljko Sevic and Jelena Stankeviciene

European Research Studies Journal, 2019, vol. XXII, issue 1, 3-15

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.

Keywords: Managerial optimism; excess value; investment; financial constraints (search for similar items in EconPapers)
JEL-codes: D80 D81 G31 G32 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:ers:journl:v:xxii:y:2019:i:1:p:3-15