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(originally published by Booz & Company)


How a CEO’s High-Octane Optimism Can Fuel Success

The authors found that managers who have a longer streak of meeting or beating their goals were more likely to do the same in the subsequent quarter than those with a shorter run of recent successes. And some managers do consistently display a greater ability to deliver on their promises than others.

Finally, the authors note that their findings can’t be explained away by misbehavior, such as deceptive managerial practices. Unlike earnings reports, the authors’ measures of accounting manipulation or abnormal cash flows showed no relationship to the number of past forecast successes.

“These results suggest that the increase in firm performance is genuine,” the authors write, “and that managers, being over-optimistic regarding the likelihood of meeting the expectations they set, may not feel the need to manage earnings to reach their forecasts.”

Bottom Line:
Overconfidence can be dangerous, but this study finds that top executives whose firms have a recent history of beating their earnings forecasts become more optimistic about their appraisals. And the cheery outlook pays off in increased firm performance, as executives appear to work harder to meet those optimistic goals.

Author Profile:

  1. Matt Palmquist is a freelance journalist based in Oakland, Calif.


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