Impacts of internal financing on investment decisions by optimistic and overconfident managers

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5 Citations (Scopus)

Abstract

The paper examines the interactions of investment decisions by managers who display optimistic and overconfident biases on the prospects of firm growth and riskiness with internal financing. The model demonstrates that the investment threshold for optimistic and overconfident managers can both rise above and fall below the threshold to maximize the market value of the firm, depending on the level of internal funds. It also derives the optimal level of internal funds that induces the managers to maximize the market value of the firm and illustrates the impacts of managerial optimism and overconfidence.

Original languageEnglish
Pages (from-to)107-125
Number of pages19
JournalEuropean Financial Management
Volume20
Issue number1
DOIs
Publication statusPublished - 2014 Jan
Externally publishedYes

Keywords

  • Internal financing
  • Managerial optimism
  • Managerial overconfidence
  • Real options

ASJC Scopus subject areas

  • Accounting
  • Economics, Econometrics and Finance(all)

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