I (Don't) Care about Your Belief : Managerial Overoptimism and Discretionary Disclosure

We examine the effect of managerial overoptimism on discretionary disclosure choices. In efficient capital markets, overoptimism should matter for disclosure outcomes only if the disclosed information represents the manager's subjective expectation and the market is unaware of the precise bias of the manager. In these cases, firms run by overoptimistic managers are overvalued, providing novel implications for disclosure-based trading strategies and managerial hiring decisions of shareholders. Finally, the disclosure outcome depends crucially on the subjectivity of the disclosed information, the manager’s overoptimism, and overall market sentiment