Managerial Optimism, Overconfidence and Board Characteristics: Toward a New Role of Corporate Governance

The aim of this paper is to discuss the effect of corporate governance mechanisms on controlling CEOs’ emotions and some behavioral biases. Departing from a sample of 40 public traded Tunisian firms, we test the impact of the board of directors on managing CEO’s irrationalities. Our results highlight strong evidence on the role of the board characteristics, especially the board independence, a small size and the absence of duality of posts on reducing some well documented biases such as managerial optimism and overconfidence. Our study contributes to the literature of corporate governance since it constitutes the basis of the new role of corporate governance as a power factor that can eliminate or reduce distortions in corporate decision caused by behavioral factors other than those of the traditional corporate governance. Corporate governance should include a new original mission; it should resolve the observable distortions that it may arise from managerial psychology.