Title: Moderating role of managerial optimism on the relationship between macroeconomic uncertainty and capital structure decisions

Authors: Yee Peng Chow; Junaina Muhammad; A.N. Bany-Ariffin; Fan Fah Cheng

Addresses: Faculty of Accountancy, Finance and Business, Tunku Abdul Rahman University College, Kuala Lumpur, Malaysia ' School of Business and Economics, Universiti Putra Malaysia, Selangor, Malaysia ' School of Business and Economics, Universiti Putra Malaysia, Selangor, Malaysia ' School of Business and Economics, Universiti Putra Malaysia, Selangor, Malaysia

Abstract: This paper investigates the moderating role of managerial optimism on the association between macroeconomic uncertainty and capital structure decisions. Drawing on a panel of 907 listed non-financial firms from seven Asia-Pacific countries over the period 2004 to 2020, this paper estimates the regression models using the system generalised method of moments technique. The results provide evidence of the negative influence of macroeconomic uncertainty on leverage. However, in contrast to the common belief that managerial optimism encourages more leverage, this paper finds that when managerial optimism is interacted with macroeconomic uncertainty, the former fails to mitigate the initial negative effect of the latter on leverage. Further analyses on the individual measures of managerial optimism demonstrate that only the gender of the CEO or chair of the board weakens this negative relationship, while the CEO's or chair's founder status, excessive shareholdings and monetary value invested in the firm's common shares strengthen this relationship.

Keywords: macroeconomic uncertainty; leverage; capital structure; managerial optimism; Asia-Pacific.

DOI: 10.1504/IJMP.2024.136984

International Journal of Management Practice, 2024 Vol.17 No.2, pp.200 - 227

Accepted: 15 Jul 2022
Published online: 01 Mar 2024 *

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