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R&D investment–cash flow sensitivity under managerial optimism

Author

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  • Mohamed, Ezzeddine Ben
  • Shehata, Mohammed Abdelshakour

Abstract

The aim of this paper is to explore the effect of managerial optimism on the R&D cash-flow (hereafter, R&D ICF) sensitivity. Departing from 864 yearly observations between 108 public firms listed at the NYSE from 1999 to 2010, we construct a measure of managerial optimism as it described by Malmendier and Tate (2005) and we use a standard Q-model of investment. Our results report that firms with optimistic CEOs apply a strong positive and significant R&D ICF sensitivity. Running estimation for sub-sample firms, we find that the sensitivity of R&D investment to cash flows is stronger for more constrained group than the less constrained group.

Suggested Citation

  • Mohamed, Ezzeddine Ben & Shehata, Mohammed Abdelshakour, 2017. "R&D investment–cash flow sensitivity under managerial optimism," Journal of Behavioral and Experimental Finance, Elsevier, vol. 14(C), pages 1-4.
    • Handle: RePEc:eee:beexfi:v:14:y:2017:i:c:p:1-4
    DOI: 10.1016/j.jbef.2017.02.001
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    Citations

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    Cited by:

    1. Bassem Salhi, 2021. "The Relationship between CEO Psychological Biases, Corporate Governance and Corporate Social Responsibility," JRFM, MDPI, vol. 14(7), pages 1-19, July.
    2. Ben Mohamed, Ezzeddine, 2021. "Managerial optimism, investment cash flow sensitivity and agency costs: Evidence from NYSE panel data firms," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    3. Chiu, Chun-Ju & Ho, Amy Yueh-Fang & Tsai, Li-Fang, 2022. "Effects of financial constraints and managerial overconfidence on investment-cash flow sensitivity," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 135-155.

    More about this item

    Keywords

    Managerial optimism; R&D expenditure; ICF sensitivity; Financial constraints;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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