Financially constrained firms: the impact of managerial optimism and corporate investment - the case of Greece

Abstract

Purpose: The purpose of this paper is to examine the impact of managerial optimism on corporate investment regarding the financially constrained firms for the case of Greece. Taking as a fact that managers principally are optimistic and often overconfident an effort is made to highlight the effect of this psychological bias on managerial investment decision–making. Design/methodology/approach The research methodology is based on the approach that the investment-cash flow sensitivity of firms with optimistic managers is more pronounced in financially constrained (equity dependent) firms. Data is gathered from the stock market as well as from balance sheets and cash flow statements for all firms of the sample. Focus is placed on every firm’s annual report in order to gather all necessary data for the methodology. Additionally, stock prices are classified on an everyday basis for all firms for the years from 2007 to …