New product strategies and firm performance: CEO optimism

Chen, Sheng‐Syan; Lin, Cheng-Hung; Tsai, Yun-Ching

doi:10.1016/j.iref.2018.01.021

Cited by 9 publications

(6 citation statements)

References 62 publications

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“…Our results are consistent with those of previous studies, which show that optimistic CEOs have a greater tendency to save cash for future growth and promising investments and to use debt prudently (Ataullah et al, 2018;Huang-Meier et al, 2016;Chen et al, 2018). Such activities, along with optimistic CEOs consistent pursuit of goals are elements to which the market attaches high value.…”

Section: Discussionsupporting

confidence: 92%

“…Prior studies have also used CEO's behavior regarding stock-options, (i.e. when CEO decides to sell or exchange his/her stock options) to serve as a proxy for CEO optimism (e.g., Shu et al, 2012;Bouwman, 2014;Chen et al, 2018). Our literature review is exclusively based on those papers that examine the letter to shareholders to measure CEO optimism, using psychological dictionaries such as the life orientation test (LOT) or financial word lists (e.g.…”

Section: Discussionmentioning

confidence: 99%

“…A CEO with a high degree of optimism tends to hold positive expectations about the future performance of their firm, and importantly, they strive to achieve high-value goals (such as future earnings targets). Optimistic CEOs tend to be more confident in their abilities, suggesting that they engage in risky but promising investments (Chen et al, 2018). Huang-Meier et al (2016) find that optimistic managers have a higher propensity to accumulate additional cash for growth opportunities and save more cash in adverse conditions.…”

Section: Introductionmentioning

confidence: 99%

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“Look on the bright side”: CEO optimism and firms' market valuation

Alshorman

Shanahan

2021

PAR

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Purpose Previous research suggests that a CEO’s attitude can impact a firm’s performance. More particularly, there appears to be a link between the CEO’s revealed level of optimism and firm’s market value. The purpose of this paper is to measure the level of optimism revealed by Australian CEOs in their shareholder letters and compares this with their firms’ current and future valuations. Design/methodology/approach This study assesses the CEO’s level of optimism using text analysis of the annual letters to shareholders in 180 Australian-based firms from 2010 to 2013. The market valuation of their companies over the same period is calculated using Tobin’s Q, and the results compared with the level of CEO optimism. Findings Comparing the level of revealed optimism with their firms’ valuations over four years, CEO optimism is positively correlated, both currently and prospectively with firm valuation. Given the period under study immediately followed the global financial crisis (GFC), the results suggest CEO optimism may be an important factor in adding to firm’s market resilience. Research limitations/implications The study examines the link between revealed CEO optimism and firm valuation over a turbulent period of the business cycle. While the sample period follows the GFC, and Tobin’s Q has some known deficiencies, the results imply that further research should be undertaken to examine the importance of CEOs tone and communicated attitudes on their firms’ financial outcomes. Practical implications The link between CEO optimism and the firm’s valuation suggest that shareholders and boards should pay particular attention to the values, cognitions and psychological and demographic characteristics of top executives when selecting CEOs. In particular, the results suggest that given two otherwise similar CEOs the one whose record of communication is optimistic should be preferred over a similarly qualified but less sanguine individual. Originality/value The paper represents the first study demonstrating the link between CEO’s communicated optimism and Australian firms’ valuations. The study uses three different measures of optimism to improve the robustness of its conclusions, and a comprehensive measure of firm value – Tobin’s Q. It is the first to quantify the association between CEO optimism and firm value shortly after a period of financial upheaval (the GFC). The findings indicate that CEO optimism contributes significantly to firm value. The study also tests whether “excessive” optimism negatively impacts firm performance and conclude there is no evidence of this in the sample period. The study suggests that more research should be done to examine the contribution of positive business attitudes to periods of economic stress.

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Section: Discussionsupporting

confidence: 92%

Section: Discussionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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“Look on the bright side”: CEO optimism and firms' market valuation

Alshorman

Shanahan

2021

PAR

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“…CEOs are unlikely to overuse optimistic language, systematically, both because they wish to main their own and their firm's credibility or in extreme cases, increase the risk of litigation (Yuthas et al, 2002;Rogers et al, 2011). Our results are consistent with prior literature, which finds that a positive tone in corporate communication is linked to important firm outcomes such as higher performance (Yekini et al, 2016;Patelli and Pedrini, 2014), lesser audit fees (Bicudo de Castro et al, 2019), less leverage (Ataullah et al, 2018), or higher degrees of innovativeness (Chen et al, 2018).…”

Section: Discussionsupporting

confidence: 87%

The voice of profit: exploring the tone of Australian CEO's letters to shareholders after the global financial crisis

Alshorman

Shanahan

2021

CCIJ

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PurposeThis study examines the association between firm profitability and the “voice” of the CEO measured through tones they convey in their annual letter to shareholders. The paper examines whether the tones corresponds to a firm's profitability and the extent to which CEO tone varies with changes in profitability.Design/methodology/approachThe authors analyze 187 Australian CEOs communications in 748 annual letters to their shareholders between 2010 and 2013. Two-word lists created by previous researchers are used to assess tones for their positive-negative plurality, uncertainty and use of modal words. Firm profitability is identified using return on assets. The authors examine the relationship between profitability and tones using simple ANOVA as well as a linear mixed model and then a change (differences) model. The change model captures any inertia or genre effect in the CEO letter to shareholders.FindingsUsing both the level and change model, the authors find that firm profitability is associated with CEO's tones that are more optimistic and less pessimistic. The authors also find that the use of negative words has more communicative value than positive words or “net” positive words. The authors also observe some genre effect when CEOs use strong modal words.Research limitations/implicationsThe sample is restricted to a selection of Australian firms that had the same CEO for the fiscal years 2010–2013; which reported in each financial year and which survived the global financial crisis. Generalizing the findings to other periods, types of firms, or to CEOs with shorter tenure, might be questionable. This study was conducted in Australia, which may limit the applicability of the findings to other jurisdictions.Practical implicationsThe significant link between firm profitability and CEOs' use of positive, net positive and negative words implies that investors may place reliance on the use of these tones in the CEO's annual letter to accurately reflect the profitability of the firm.Originality/valueThe study extends the existing literature by examining whether a change in firm profitability is linked to a change in CEO tone. It concludes that even in periods of general financial stress, shareholders should be confident that CEOs' letters to shareholders provide credible information that corresponds to firm performance.

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“…Kinerja perusahaan dapat disebabkan oleh faktor CEO yang sulit dikembangkan secara eksternal, seperti kecerdasan/ kepribadian/ pengetahuan/ keterampilan yang tidak diajarkan (Lindorff & Jonson, 2013). Kinerja perusahaan juga dapat diukur dalam hal kinerja saham jangka pendek dan jangka panjang serta kinerja operasi yang terkait dengan pengumuman (Chen, Lin, & Tsa, 2018).…”

Section: Kinerja Perusahaanunclassified

Orientasi Kewirausahaan, Orientasi Pasar, dan Kinerja Perusahaan

Setiadi¹

2018

Preprint

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Artikel ini merupakan kajian literature yang membahas konsep orientasi kewirausahaan serta keterkaitannya dengan kinerja perusahaan. Untuk menjelaskan hubungan yang kompleks antara orientasi kewirausahaan dengan kinerja perusahaan, artikel ini membahas peranan orientasi pasar sebagi variabel mediasi. Hasil kajian berkontribusi terhadap teori kewirausahaan, namun demikian masih memerlukan uji empiris.

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New product strategies and firm performance: CEO optimism

Cited by 9 publications

References 62 publications

“Look on the bright side”: CEO optimism and firms' market valuation

“Look on the bright side”: CEO optimism and firms' market valuation

The voice of profit: exploring the tone of Australian CEO's letters to shareholders after the global financial crisis

Orientasi Kewirausahaan, Orientasi Pasar, dan Kinerja Perusahaan

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