CEO optimism and forced turnover

Timothy Campbell; Michael Gallmeyer; Shane A. Johnson; Jessica Rutherford; Brooke W. Stanley

doi:10.1016/j.jfineco.2011.03.004

Journal of Financial Economics Vol. 101 No. 3 2011

CEO optimism and forced turnover

Timothy Campbell^1,2; Michael Gallmeyer³; Shane A. Johnson⁴; Jessica Rutherford^4,5; Brooke W. Stanley⁶

¹ Miami University · ² University of Cincinnati · ³ University of Virginia · ⁴ Texas A&M University · ⁵ University of South Florida · ⁶ Winthrop University

Abstract

We show theoretically that optimism can lead a risk-averse Chief Executive Officer (CEO) to choose the first-best investment level that maximizes shareholder value. Optimism below (above) the interior optimum leads the CEO to underinvest (overinvest). Hence, if boards of directors act in the interests of shareholders, CEOs with relatively low or high optimism face a higher probability of forced turnover than moderately optimistic CEOs face. Using a large sample of turnovers, we find strong empirical support for this prediction. The results are consistent with the view that there is an interior optimum level of managerial optimism that maximizes firm value.

DOI: 10.1016/j.jfineco.2011.03.004
Volume: 101
Issue: 3
Pages: 695-712
Language: en
Sources: crossref bibtex:phds-export.bib openalex

CEO optimism and forced turnover

Abstract

Cite