The bright side of managerial over-optimism

Gilles Hilary; Charles Hsu; Benjamin Segal; Rencheng Wang

doi:10.1016/j.jacceco.2016.04.001

The bright side of managerial over-optimism

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

^*Corresponding author for this work

Accounting

Research output: Contribution to journal › Article › peer-review

52 Scopus citations

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.

Original language	American English
Pages (from-to)	46-64
Number of pages	19
Journal	Journal of Accounting and Economics
Volume	62
Issue number	1
DOIs	https://doi.org/10.1016/j.jacceco.2016.04.001
State	Published - 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.

Keywords

Firm performance
Managerial effort
Over-optimism

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10.1016/j.jacceco.2016.04.001

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The bright side of managerial over-optimism

Abstract

Bibliographical note

Keywords

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