Is Chief Executive Officer optimistic belief bad for workers? Evidence from corporate employment decisions

Abstract Using a behavioural approach, we investigate how Chief Executive Officer optimism, defined as a personality trait where a person has optimistic beliefs about the outcome of future events, influences corporate employment decisions. Using data of publicly traded firms in the U.S. from 1995 to 2017, we show that firms with optimistic CEOs have higher employment growth and exhibit less pronounced employment sensitivity to declining sales than firms with non‐optimistic CEOs do. We also find that the impact of optimistic CEOs on employment decisions is larger in financially constrained firms. We deal with potential endogeneity issues with the entropy balancing method, propensity score matching and two‐stage least squares regression. Our findings have important implications for the design and implementation of Human Resource Management policies.