Managerial Sentiment and Employment
32 Pages Posted: 19 Mar 2021
Date Written: February 1, 2021
We study firms' hiring decisions in a world in which both managers and investors are prone to expectation errors. We show that high managerial sentiment increases employment growth, especially at firms with worse investment opportunities and low-quality corporate governance, and during times of low investor sentiment. Using data on U.S. publicly traded companies and CEO option holdings, we find evidence consistent with these predictions. The results unveil a new channel through which managerial sentiment affects firms' operations, and suggest that managerial optimism can counter the negative effect of pessimistic investors on labor markets.
Keywords: Managerial sentiment, Employment, Investment opportunities, Investor sentiment
JEL Classification: D80, G12, G14, G32
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