Literature Review Women on boards and in TMTS and firm performance 87 Traditional capital market theory as for instance Markowitz 1952 portfolio theory and the majo rity of corporate finance research assumes rational behavior of market participants Behavioral corporate finance research replaces the traditionally presumed rationality with possibly more realistic behavioral assumptions The rele vant literature is divided into two approaches The first approach assumes that investors behave less than fully rational the second approach is based on the assumption that managers behave less than fully rational Baker et al 2004 With regard to the first approach that assumes imperfection of securities market arbitrage and concentrates on irrational investors coexisting with rational ma nagers the literature is very large Baker et al 2004 Research deals among others topics with the phenomena of optimism and overconfidence which are of particular relevance for the present study Investors overconfidence and the effect on trading volumes trading behavior and investment policy has been investigated to a noticeable de gree e g Barber Odean 2001 Kent Hirshleifer Subrahmanyam 2001 Kent Hirshleifer Sub rahmanyam 1998 Odean 1998 Statman Thor ley Vorkink 2006 An interesting finding for the present paper is that most people tend to claim the full credit for their own successes which leads to overconfidence Gervais Odean 2001 Over confidence is dynamic and changes with successes and failures Overconfidence should hence dimi nish with greater experience The second approach in contrast focuses on ir rational managers operating in efficient markets Irrational behavior is understood as deviating from rational expectations and presumed utility maxi mization on the part of the manager and is clearly distinguished from moral hazard behavior such as empire building Baker et al 2004 Instead the manager himself believes that he actually pursu es to goal of maximizing firm value successfully but in fact departs from his objective Baker et al 2004 In this context the emphasis of literature is on the influence of optimism and overconfidence on corporate managers behavior 4 2 2 Managerial CEO optimism and overcon fidence The fact that individuals are usually too optimi stic and overconfident has been often empirically confirmed e g Weinstein 1980 Optimism me ans that they overestimate the probability of out comes favorable to themselves and overconfiden ce describes the tendency to overestimate one s own capabilities Gervais Heaton Odean 2002 This is also known as the better than average effect From the shareholders perspective it is of vital importance whether managerial optimism and overconfidence are beneficial or detrimental to firm value While moderate managerial opti mism and overconfidence can in fact increase firm value as managers greater willingness to take risks corresponds more closely to that of sharehol ders Gervais et al 2002 Moreover it is argued that overconfidence offers potential benefits such as encouraging entrepreneurship or attracting em ployees with similar beliefs by providing a strong vision Malmendier Tate 2008 5 Malmendier Tate and Yan 2007 extend their analysis of the impact of overconfident CEOs on corporate finan cial policies by additionally focusing on manage rial beliefs and personal experiences However extreme forms of optimism and overconfidence have detrimental effects on the value of the firm Gervais et al 2002 which will be discussed in following subsections 5 See Bernardo and Welch 2001 and Van den Steen 2005 CEO optimism and overconfidence

Vorschau DIRK-Forschungsreihe Band 21 Workforce diversity and personal policies Seite 87
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