Managerial Optimism, Investment Efficiency, and Firm Valuation
Multinational Finance Journal (2013)
45 Pages Posted: 1 Mar 2013
Date Written: February 27, 2013
This study investigates the relationship between managerial optimism, investment efficiency, and firm valuation. This study follows the Campbell’s measurement for managerial optimism and investigates the influences of the different levels of managerial optimism on improving investment efficiency and firm value when firms tend to under-invest or over-invest. The results indicate that an under-invested firm with a CEO who has a higher level of managerial optimism can improve the firm’s investment efficiency by reducing the degree of underinvestment, which further increases the firm’s value. However, when firms tend to overinvest, there is insufficient evidence to show that a firm with a lower level of CEO managerial optimism will effectively improve the firm’s investment efficiency and increase firm value by reducing the degree of overinvestment. The results generated in this study help scholars and practitioners understand how managerial optimism affects the investment efficiency of firms.
Keywords: Managerial optimism, investment efficiency, overinvestment, underinvestment
JEL Classification: G02, G30
Suggested Citation: Suggested Citation