IDEAS home Printed from https://ideas.repec.org/a/fma/fmanag/heaton02.html
   My bibliography  Save this article

Managerial Optimism and Corporate Finance

Author

Listed:
  • J B Heaton

Abstract

Two dominant features emerge from a simple model of corporate finance with excessively optimistic managers and efficient capital markets.First,optimistic managers believe that capital markets undervalue their firm ’s risky securities,and may decline positive net present value projects that must be financed externally.Second,optimistic managers overvalue their own corporate projects and may wish to invest in negative net present value projects even when they are loyal to shareholders.These results establish an underinvestment- overinvestment tradeoff related to free cash flow without invoking asymmetric information or rational agency costs.

Suggested Citation

  • J B Heaton, 2002. "Managerial Optimism and Corporate Finance," Financial Management, Financial Management Association, vol. 31(2), Summer.
  • Handle: RePEc:fma:fmanag:heaton02
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fma:fmanag:heaton02. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Courtney Connors). General contact details of provider: http://edirc.repec.org/data/fmaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.