Firm Performance, Corporate decision and the Role of Managerial Optimism – the Case of Creece: Literature Review and Methodology

Abstract

Although corporate investment has been of great interest for researchers for many years, research on its correlation with behavioural corporate finance, psychology and investment decision process is quite limited. Since the mechanism of investment decision process is crucial for firms we hope that this study will demonstrate several ways in which managers could tackle with risk and personal, psychological biases in order to achieve greater outcomes. The investigation of managerial behaviour, its mindset and potential behavioural biases such as managerial optimism, is the main area of research in order to find out if these factors can be accounted for the underperformance of companies. Corporate investment decisions are among the most important decisions that firms have to deal with. In order to fully understand the investment decision process we have to focus on investment measures such as capital expenditures, investments in advertising, R&D and intangible assets (Glaser, Schafers and Weber, 2008). Investment decision process encompasses risk and thus, managers have to make decisions that are more or less risky. How managerial optimism as well as other psychological biases affect a firm’s investment decision process (Behavioural Corporate Finance)? Is there an optimum procedure risk – averted or not in order to achieve the best investment opportunities for a firm? These are the main questions we deal with in this paper in order to read into managerial optimism and its impact on firm performance and corporate decisions. In our paper we link balance sheet and stock market data as well as optimism measures of managers based on their insider trades (directors’ dealings). Our main sample is based on all non-financial Greek ASE stocks between 2008 to present as well as on insider trading data of all senior managers of companies listed in the Athens Stock Exchange.