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Impacts of Internal Financing on Investment Decisions by Optimistic and Overconfident Managers

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  • Shinsuke Kamoto

Abstract

The paper examines the interactions of investment decisions by managers who display optimistic and overconfident biases on the prospects of firm growth and riskiness with internal financing. The model demonstrates that the investment threshold for optimistic and overconfident managers can both rise above and fall below the threshold to maximize the market value of the firm, depending on the level of internal funds. It also derives the optimal level of internal funds that induces the managers to maximize the market value of the firm and illustrates the impacts of managerial optimism and overconfidence.

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  • Shinsuke Kamoto, 2014. "Impacts of Internal Financing on Investment Decisions by Optimistic and Overconfident Managers," European Financial Management, European Financial Management Association, vol. 20(1), pages 107-125, January.
    • Handle: RePEc:bla:eufman:v:20:y:2014:i:1:p:107-125
    DOI: 10.1111/j.1468-036X.2011.00624.x
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    Cited by:

    1. Geetika Madaan & Sanjeet Singh, 2019. "An Analysis of Behavioral Biases in Investment Decision-Making," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 10(4), pages 55-67, July.
    2. Wei Ye & Yong Zhang, 2019. "CEO traits, dynamic compensation and capital structure," PLOS ONE, Public Library of Science, vol. 14(2), pages 1-11, February.

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