The bright side of managerial over-optimism

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

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

52 Scopus citations


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.

Original languageAmerican English
Pages (from-to)46-64
Number of pages19
JournalJournal of Accounting and Economics
Issue number1
StatePublished - 1 Aug 2016

Bibliographical note

Funding Information:
We gratefully acknowledge the helpful comments and suggestions made by Sudipta Basu (the referee), Nicole David, Denis Gromb, Kai Wai Hui, Tiphaine Jerome, S.P. Kothari (the editor), Vikas Mehrotra (the discussant at the 2014 Accounting and Finance Research Forum), Kirill Novoselov, Terry Walter, Guochang Zhang, and workshop participants at Fudan University, Hong Kong University of Science and Technology, INSEAD, National University of Singapore, Shanghai Jiaotong University, University of Western Australia, and Xiamen University. We thank Jianghua Shen for research assistance. Hsu acknowledges financial support from the Hong Kong Research Grants Council (HKUST641410; FSGRF13BM02).

Publisher Copyright:
© 2016 Elsevier B.V.


  • Firm performance
  • Managerial effort
  • Over-optimism


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