ASFEE 6 in Paris

Speakers > Santos-Pinto Luis

Entrepreneurial Optimism and the Market for New Issues
Luis Santos-Pinto  1@  , Michele Dell'era  2@  
1 : University of Lausanne  (UNIL)  -  Website
University of Lausanne Internef 535 1015 Lausanne Switzerland -  Switzerland
2 : Bocconi University

This paper analyzes the impact of entrepreneurial optimism on the market for new issues. We find that the existence of optimists generates a new reason for entrepreneurs to own equity in their firms. We show that optimism is a natural explanation for why some new issues are overpriced. We also show that the impact of optimism on entrepreneurs' equity holdings depends on the number of optimists, absolute risk aversion, and cash flow variance. Optimism makes entrepreneurs worse off. In contrast, optimism can make outside investors better off when entrepreneurs signal firm value by retaining shares and, on average, by underpricing.


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