Abstract

http://ssrn.com/abstract=1280410
 
 

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CEO Optimism and Forced Turnover


Timothy Colin Campbell


Miami University of Ohio - Department of Finance

Michael F. Gallmeyer


University of Virginia (UVA) - McIntire School of Commerce

Shane A. Johnson


Texas A&M University - Department of Finance

Jessica Rutherford


University of South Florida

Brooke Stanley


Winthrop University

September 1, 2010

Journal of Financial Economics (JFE), Forthcoming

Abstract:     
We show theoretically that optimism can lead a risk-averse 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.

Number of Pages in PDF File: 56

Keywords: optimism, turnover, behavioral finance, governance

JEL Classification: G30, G34

Accepted Paper Series


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Date posted: October 8, 2008 ; Last revised: October 18, 2011

Suggested Citation

Campbell, Timothy Colin and Gallmeyer, Michael F. and Johnson, Shane A. and Rutherford, Jessica and Stanley, Brooke, CEO Optimism and Forced Turnover (September 1, 2010). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: http://ssrn.com/abstract=1280410

Contact Information

Timothy Colin Campbell
Miami University of Ohio - Department of Finance ( email )
Oxford, OH 45056
United States
Michael F. Gallmeyer
University of Virginia (UVA) - McIntire School of Commerce ( email )
P.O. Box 400173
Charlottesville, VA 22904-4173
United States
434-243-4043 (Phone)
434-924-7074 (Fax)
HOME PAGE: http://www.commerce.virginia.edu/faculty_research/facultydirectory/Pages/Gallmeyer.aspx
Shane A. Johnson (Contact Author)
Texas A&M University - Department of Finance ( email )
Mays School of Business
College Station, TX 77843-4218
United States
979-862-3318 (Phone)

Jessica Rutherford
University of South Florida ( email )
Tampa, FL 33620
United States
Brooke Stanley
Winthrop University ( email )
Rock Hill, SC 29733-0001
United States
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