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The bright side of managerial over-optimism

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  • Hilary, Gilles
  • Hsu, Charles
  • Segal, Benjamin
  • Wang, Rencheng

Abstract

Human estimation and inference are subject to systematic biases such as overconfidence and over-optimism. In contrast to prior research that has identified multiple negative consequences of these biases, we focus on positive effects. We empirically examine a setting in which over-optimism a) is a related but different bias from overconfidence, b) emerges dynamically in a rational economic framework, and c) generates higher managerial effort. Importantly, this additional effort improves firm profitability and market value.

Suggested Citation

  • Hilary, Gilles & Hsu, Charles & Segal, Benjamin & Wang, Rencheng, 2016. "The bright side of managerial over-optimism," Journal of Accounting and Economics, Elsevier, vol. 62(1), pages 46-64.
  • Handle: RePEc:eee:jaecon:v:62:y:2016:i:1:p:46-64
    DOI: 10.1016/j.jacceco.2016.04.001
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    2. Zhang, Chengsi & Sun, Yuchen & Tang, Di, 2019. "Whose confidence matters in Chinese monetary policy?," International Review of Economics & Finance, Elsevier, vol. 60(C), pages 188-202.
    3. Andrew Vivian & Bin Xu, 2018. "Time-varying managerial overconfidence and pecking order preference," Review of Quantitative Finance and Accounting, Springer, vol. 50(3), pages 799-835, April.
    4. Ali Ataullah & Andrew Vivian & Bin Xu, 2018. "Optimistic Disclosure Tone and Conservative Debt Policy," Abacus, Accounting Foundation, University of Sydney, vol. 54(4), pages 445-484, December.
    5. Vlad I. RO?CA, 2017. "Using Internal Marketing Communications to Improve HRM in Service-Based Sports Organizations," REVISTA DE MANAGEMENT COMPARAT INTERNATIONAL/REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 18(4), pages 406-420, October.
    6. Elif Aydin, 2019. "The Effect of Spiritual Intelligence and Optimistic on Creativity in Team and Individual Sports Activities of Trabzon University Students," Asian Journal of Education and Training, Asian Online Journal Publishing Group, vol. 5(3), pages 397-402.

    More about this item

    Keywords

    Over-optimism; Managerial effort; Firm performance;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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