CEO-CFO Team Optimism: Commercial Real Estate Transactions and REIT Performance

38 Pages Posted: 2 Dec 2020 Last revised: 12 May 2022

See all articles by Piet Eichholtz

Piet Eichholtz

Maastricht University

Erkan Yönder

John Molson School of Business, Concordia University

Date Written: August 10, 2020

Abstract

The literature regarding the effects of managerial optimism concentrates on CEOs, all but neglecting other members of the executive team. We evaluate the interplay of the optimism levels of the CEOs and CFOs of listed real estate investment trusts, and study the commercial real estate transactions made by the firms led by these teams. We find that firms led by optimistic CEO/CFO teams pay 3-3.2% more than their peers for their private asset acquisitions if the cash ratio increases by one percentage point. These firms also exhibit inferior stock performance following their asset acquisitions conditional on overpayment for the property. Conversely, diverse opinions between the CEO and CFO prevent firms from overpaying on their asset transactions, improving their stock performance relative to optimistic executives. Our findings suggest that diversity in terms of executive optimism is a soft governance mechanism with salience to firm performance.

Keywords: Executive team, optimism, overconfidence, counterbalance, private assets

Suggested Citation

Eichholtz, Piet and Yönder, Erkan, CEO-CFO Team Optimism: Commercial Real Estate Transactions and REIT Performance (August 10, 2020). Available at SSRN: https://ssrn.com/abstract=3672693 or http://dx.doi.org/10.2139/ssrn.3672693

Piet Eichholtz

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Erkan Yönder (Contact Author)

John Molson School of Business, Concordia University ( email )

Montreal
Canada

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