It's Not Optimism When You Know You're Right: Optimism, Attribution and Corporate Investment Policy
39 Pages Posted: 9 Dec 2015
Date Written: September 15, 2015
Abstract
CEOs whose observed personal option-holding patterns are not consistent with theoretical predictions are variously described as overconfident or optimistic. Existing literature demonstrates that the investment and financing decisions of such CEOs differ from those of CEOs who do not exhibit such behavior and interprets the investment and financing decisions by overconfident or optimistic CEOs as inferior. This paper argues that it may be rational to exhibit behavior interpreted as optimistic and that the determinants of a CEO’s perceived optimism are important. Further, this paper shows that CEOs whose apparent optimism results from above average industry-adjusted CEO performance in prior years make investment and financing decisions which are actually similar, and sometimes superior to, those of unbiased CEOs.
Keywords: CEO optimism, CEO confidence, Self-attribution, M&A, Dividend payout, Investment sensitivity
JEL Classification: G30, G31, G34, G35, G14
Suggested Citation: Suggested Citation