Managerial Overoptimism and Discretionary Disclosure
Abstract
ABSTRACT We examine the effect of managerial overoptimism on discretionary disclosure of subjective information, such as earnings forecasts. The market applies a discount upon disclosure to capture the possibility that the revealed subjective expectation is too optimistic. While this discount is correct on average, it is too high (low) for a truly objective (overoptimistic) manager. Consequently, overoptimistic managers disclose more frequently, and their firms are overvalued. We show that higher levels of overoptimism or a greater fraction of overoptimistic managers amplify the market discount, which ultimately reduces overall disclosure in equilibrium.
Fields of Study & Subjects
Auditing
Earnings Management
Governance
Corporate Finance and Governance
Financial Markets and Investment Strategies
Publication details
- Journal / source
- Journal of Business Finance & Accounting
- Volume
- 53
- Issue
- 4
- Pages
- 1337–1356
- Publication date
- 2 March 2026
- Language
- EN