The Relationship Among Managerial Sentiment, Corporate Investment, and Firm Value: Evidence from Taiwan

Hsiao-Fen Hsiao, Chuan-Ying Hsu, Chun-An Li and Ai-Chi Hsu

Emerging Markets Finance and Trade, 2011, vol. 47, issue 2, 99-111

Abstract: This study has two objectives: to examine the relationship between managerial sentiment and corporate investment and to examine the relationship between investment and firm value. We use a sample of Taiwanese firms and find that an optimal level of investment that maximizes a firm's value does exist and that it depends upon the quality of the investment opportunities. In addition, the empirical results show that when firms have valuable (nonvaluable) investment opportunities, managerial optimism (pessimism) makes overinvestment (underinvestment) more likely. Interestingly, the overinvestment (underinvestment) phenomenon for optimistic (pessimistic) managers differs significantly between valuable project and nonvaluable project firms.

Keywords: earnings manipulation; managerial sentiment; overinvestment; underinvestment (search for similar items in EconPapers)
Date: 2011
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