Managerial over-optimism and agency costs of debt: Evidence from high-tech IPO firms in Korea
Date
2021-01-15
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Taylor & Francis
Abstract
We examine whether the combination of agency costs of debt and managerial optimism in high-tech IPOs creates inefficient R&D investment, thus undermining corporate value. We find that high-tech IPO firms with a high debt ratio exhibit a positive relationship between discretionary and future R&D expenses at the IPO point. We also find a negative relationship between discretionary R&D expenses and the long-term cumulative abnormal return. Furthermore, managerial optimism and agency costs of debt can increase during an IPO, reducing future value. Thus, a stock return decrease after an IPO may be influenced by management’s psychological errors and shareholders’ preferences for risky investments.
Description
Article originally published in Applied Economics Letters, 29(6), 545–550. English. Published Online 2021. https://doi.org/10.1080/13504851.2021.1875116
Keywords
IPO, High-tech firm, Discretionary R&D expense, Managerial over-optimism, Agency cost of debt
Citation
This is the post-print version of an article that is available at https://doi.org/10.1080/13504851.2021.1875116. Recommended citation: Kim, K. S., Choi, W., & Chung, C. Y. (2021). Managerial over-optimism and agency costs of debt: Evidence from high-tech IPO firms in Korea. Applied Economics Letters, 29(6), 545–550. This item has been deposited in accordance with publisher copyright and licensing terms and with the author’s permission.