Managerial optimism, investment cash flow sensitivity and agency costs: Evidence from NYSE panel data firms

Abstract

This study deals with a new survey for the relationship between CEO optimism and investment cash flow (ICF) sensitivity in presence of asymmetric information and agency costs problems. In this paper, we conduct an empirical study of ICF among NYSE manufacture firms during the period 1999–2010. Our results report that the ICF sensitivity exists and is significant especially for firms that run agency costs. This result is robust to a battery of different model including alternative assumptions and different methodologies based on Adjusted Q-model and Euler equation model. For another set of tests, we demonstrate that a large blockholders holding may succeed to reduce investment cash flow caused by CEOs optimism bias.