The Relationship Among Managerial Sentiment, Corporate Investment, and Firm Value: Evidence from Taiwan

Hsiao-Fen Hsiao · Chuan-Ying Hsu · Chun-An Li · Ai-Chi Hsu

21 citations0/0 files storedEmerging Markets Finance and Trade

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Corporate Finance and Governance Financial Markets and Investment Strategies Capital Investment and Risk Analysis

Abstract

This study has two objectives: to examine the relationship between managerial sentiment and corporate investment and to examine the relationship between investment and firm value. We use a sample of Taiwanese firms and find that an optimal level of investment that maximizes a firm's value does exist and that it depends upon the quality of the investment opportunities. In addition, the empirical results show that when firms have valuable (nonvaluable) investment opportunities, managerial optimism (pessimism) makes overinvestment (underinvestment) more likely. Interestingly, the overinvestment (underinvestment) phenomenon for optimistic (pessimistic) managers differs significantly between valuable project and nonvaluable project firms.

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