The Impact of Optimistic and Pessimistic Managers on Firm Performance and Corporate Decisions

This paper investigates if and to which extent managerial behavior, its mindset and potential behavioral biases can be accounted for the underperformance of companies. We include behavioural explanations, such as optimistic managers, as well as rational theories, for example agency costs or that informed managers take advantage of a possible window of opportunity. Using the data of IPOs and SEOs going public in the US from 1990 to 2003, we find evidence that optimistic managers as well as pessimistic managers help to explain the long run underperformance of new equity offerings. We furthermore investigate into the investment decisions taken by these groups of managers after the share issuance. We see distinct different investment behaviour by each type of manager in terms of capital expenditures, debt rebalancing and cash holdings.