Investment Cash Flow Sensitivity under Managerial Optimism: New Evidence from NYSE Firms Panel Data

37 Pages Posted: 4 Jul 2013

See all articles by Ezzeddine Ben Mohamed

Ezzeddine Ben Mohamed

University of Sfax

Abdelfatteh Bouri

University of Sfax - Faculty of Economics and Management (FSEGS)

Richard J. Fairchild

University of Bath - School of Management

Date Written: July 2, 2013

Abstract

Investment cash flow sensitivity constitutes one important block of the corporate financial literature. While it is well documented in standard corporate finance, it is still young under behavioral corporate finance. In this paper, we test the investment cash flow sensitivity among panel data of American industrials firms during 1999-2010. Using Q-model of investment (Tobin 1969), we construct and introduce a proxy of managerial optimism following Malmendier and Tate (2005a) to show the impact of CEOs optimism in the relationship between investment and internal cash flow. Our results report a positive and significant coefficient of investment to cash flow for the full sample. While, estimations of our model using sub-sample of more and less constrained firms, we find that the sensitivity exist and stronger only for totally constrained group. We find also that board characteristics can reduce investment policy’ distortions.

Keywords: Managerial optimism, corporate investment, investment cash flow sensitivity, over investment, underinvestment, financial constraints

JEL Classification: G02, G30, G31, G32

Suggested Citation

Ben Mohamed, Ezzeddine and Bouri, Abdelfatteh and Fairchild, Richard J., Investment Cash Flow Sensitivity under Managerial Optimism: New Evidence from NYSE Firms Panel Data (July 2, 2013). Available at SSRN: https://ssrn.com/abstract=2288702 or http://dx.doi.org/10.2139/ssrn.2288702

Ezzeddine Ben Mohamed (Contact Author)

University of Sfax ( email )

COFFIT-FSEG SFAX
Tunisia
+216 21750064 (Phone)

Abdelfatteh Bouri

University of Sfax - Faculty of Economics and Management (FSEGS) ( email )

Road of Airport, Km 4
Sfax, sfax 3018
Tunisia

Richard J. Fairchild

University of Bath - School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom
01225 323456 (Phone)
01225 323902 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
160
Abstract Views
1,152
rank
215,307
PlumX Metrics