Will Managerial Optimism Affect the Investment Efficiency of a Firm?

We follow the measurement of Campbell et al. (2011) for managerial optimism and investigate the influences of the different levels of managerial optimism on improving the investment efficiency when firms tend to under-invest or over-invest. The results indicate that an under-invested firm with a CEO that has a high level of managerial optimism can improve the firm's investment efficiency by reducing the degree of underinvestment, further increasing the value of a firm.