Abstract

The literature regarding the effects of managerial optimism concentrates on CEOs, all but neglecting the broader 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 executive teams pay 2.7% more than their peers for their private asset acquisitions if the cash ratio increase by one percentage point. These firms also exhibit inferior stock performance following their asset acquisitions. Conversely, diverse opinions in the boardroom prevent firms from overpaying on their asset transactions, improving their stock performance relative to optimistic teams. Our findings suggest that diversity in terms of executive optimism is a soft governance mechanism with salience to firm performance.