TY - JOUR
T1 - Managerial over-optimism and agency costs of debt
T2 - evidence from high-tech IPO firms in Korea
AU - Kim, Kyung Soon
AU - Choi, Wonseok
AU - Chung, Chune Young
N1 - Funding Information:
This study was supported by research fund from Chosun University (2020).
Publisher Copyright:
© 2021 Informa UK Limited, trading as Taylor & Francis Group.
PY - 2022
Y1 - 2022
N2 - 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.
AB - 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.
KW - IPO
KW - agency cost of debt
KW - discretionary R&D expense
KW - high-tech firm
KW - managerial over-optimism
UR - http://www.scopus.com/inward/record.url?scp=85100209619&partnerID=8YFLogxK
U2 - 10.1080/13504851.2021.1875116
DO - 10.1080/13504851.2021.1875116
M3 - Article
AN - SCOPUS:85100209619
SN - 1350-4851
VL - 29
SP - 545
EP - 550
JO - Applied Economics Letters
JF - Applied Economics Letters
IS - 6
ER -