




































 
 

 

82 
© 2019 by the authors; licensee Asian Online Journal Publishing Group 
 

Economy 
Vol. 6, No. 2, 82-91, 2019 

ISSN(E) 2313-8181/ ISSN(P) 2518-0118 
DOI: 10.20448/journal.502.2019.62.82.91 

© 2019 by the authors; licensee Asian Online Journal Publishing Group 

    
 

 

 
 
 
Managerial Optimism Level, Board of Directors Efficiency and Debt Decision in 
Tunisian Companies 

 
Mohamed Ali Azouzi    

 

 
Doctor, HDR and Assistant Professor in Finance and Accounting Methods, Faculty of Management, University 
of Monastir Sidi Messaoud, Mahdia, Tunisia. 

 

 
Abstract 

This article deals with the relationship existing between the emotional aspect and decision-
making processes. More specifically, it examines the links between managerial optimism level, 
debt decision and board of director’s efficiency. This Stream of research argues that the CEO 
optimism level is affected by the Board of Directors efficiency. In this regard, an empirical study 
was conducted using a questionnaire as a data collection method adapted to a sample of 75 
Tunisian firms. Regarding, The optimism level they have been measured by means of a 
questionnaire comprising several items.  Our analyzes revealed the importance of CEO optimism 
in the debt decision. It has been found that an optimistic leader prefers more debt even in 
companies ruled by independent boards. On the other hand, the results’ analyzing the hypotheses 
2 and 3 regarding the size of the board and the combination of CEO and Board Chair does not 
confirm our theoretical analysis. 

 
Keywords: CEO optimism, CEO education, Board of directors, Duality, Financial policy, Debt level, Behavioral corporate finance. 

JEL Classification: D2, G3, L2, L5, M1. 

 
Citation | Mohamed Ali Azouzi (2019). Managerial Optimism 
Level, Board of Directors Efficiency and Debt Decision in Tunisian 
Companies. Economy, 6(2): 82-91. 
History:  
Received: 2 October 2019 
Revised: 5 November 2019 
Accepted: 9 December 2019 
Published: 17 January 2020 
Licensed: This work is licensed under a Creative Commons 

Attribution 3.0 License  
Publisher:  Asian Online Journal Publishing Group 
 

Funding: This study received no specific financial support. 
Competing Interests: The author declares that there are no conflicts of 
interests regarding the publication of this paper. 
Transparency: The author confirms that the manuscript is an honest, 
accurate, and transparent account of the study was reported; that no vital 
features of the study have been omitted; and that any discrepancies from the 
study as planned have been explained. 
Ethical: This study follows all ethical practices during writing.   

 

 

Contents 
1. Introduction ................................................................................................................................................................... 83 
2. Hypothesis Development ............................................................................................................................................ 83 
3. Research Method .......................................................................................................................................................... 85 
4. Empirical Results ......................................................................................................................................................... 88 
5. Conclusion ...................................................................................................................................................................... 89 
References .......................................................................................................................................................................... 90 
 

 

 

 

 

 

 

 

 

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Contribution of this paper to the literature 
In fact, to improve the explanatory power of the legal-financial approach to governance, the behavioral 
dimension has been integrated for a more in-depth analysis of the role of the board of directors. This 
study aims to highlight the role played by manager optimism on board effectiveness in controlling the 
company's debt level. 

 
1. Introduction 

Since the works of Modigliani and Miller (1958) which prove the irrelevance of financing decisions of 
companies under the conditions of the perfect market. A large number of theoretical and empirical analyzes have 
been developed to study the determinants of business financing decisions caused by various market imperfections in 
the real world. Earlier researchers in this field generally follow two competing theories, 'Static Trade off theory' 
and 'pecking order theory' which assumes a wide rationality. The study by Frank and Goyal (2003) concludes that 
there is no universal theory that can fully explain business financing decisions while traditional explanations for 
capital structure are largely based on the assumption of rationality of the managers. 

Theorists integrated the behavioral dimension into the analysis of the choice of the capital structure; they 
explain his choice on the CEO emotional biases. This integration has enriched theories of capital structure: the 
Static Trade Off and Peking Order Theory (Azouzi and Jarboui, 2012; Azouzi and Jarboui, 2018). Some studies 
address the issue from the point of view that rational managers interact with rational outside investors too. Only  
recently a more small number of analyses emerging by focusing on cognitive biases (optimism, excess of trust and 
loss aversion) managers themselves and trying to understand how they can interact with the different statuses of 
the company and primarily with the control system. 

Schrand and Zechman (2010) show that overly confident managers make optimistic forecasts and in order to 
meet these expectations, they show higher levels of future earnings. In a series of studies, Malmendier and Tate 
(2005); Malmendier and Tate (2008); Malmendier and Tate (2015) and Malmendier et al. (2010) formalize the 
notion of leadership behavior and provide empirical evidence to analyze the effects of managerial optimism level on 
funding preferences and  capital structure choice. 

The implications of optimism for the company's funding decisions have recently begun to be explored by 
behavioral finance researchers. In the psychological and behavioral literature, optimism is generally associated with 
an exaggerated positive perception about the probability that the favorable events will occur and simultaneously 
with the underestimation of the probability that the adverse events will occur. Similarly, Heaton (2002) argues that 
managers tend to overstate not only their investment opportunities but also the value of their companies. This 
principle gives a total convergence of the interests of direct with the interests of the shareholders. 

Gervais and Odean (2001); Chang et al. (2009) show the existence of a positive relationship between optimism 
and uncertainty. This uncertainty implies the risk aversion and precisely the risk of the loss of the stability of 
position of CEO. So the leader will defend his interests and seeks to take a better position in society and refuses any 
decision that could change its current state. In this sense, the entry of new shareholders will increase the level of 
control exercised over the CEO which represents one of the dangers for this leader. This reflects the negative 
relationship between the CEO optimism level and the equity choice. 

Debt carried out under the conditions described above can constitute a rooting strategy for the CEO. The 
strategy is for agents who wish to take root, to increase the cost of their replacement for their principal. By doing 
so, they can benefit from better job security, higher remuneration or even more freedom in their actions.  

Faced with the many questions raised by research on the link between the optimism of leaders and the modes 
applied to control this cognitive bias, we will analyze the impact of certain governance mechanisms on the decision-
making of financing by the biased agent. This analysis will focus on the internal mechanism of governance, the 
board of directors. 

The board of directors is the central mechanism of the internal governance of the company. The relationship 
between executive optimism and the choice of board feature, as a key determinant of corporate governance, was 
founded by several previous researchers and particularly by Malmendier and Tate (2005). Implicitly, they suggest 
that corporate governance can be a solution for limited irrational management and especially those that derives 
from managerial optimism. 

The board effectiveness is a few standards about its characteristics (Jensen, 1993) in what follows we develop 
the possible effect of the board mechanisms on leadership optimism and funding decision. 

In this article, we try to develop some testable predictions in order to give some logical answers, even partial 
answer for the following question: Can manager optimism affect board efficiency and debt decision? This study 
aims to explore three main hypotheses that explain the effect of optimism on the board of directors characteristics 
(independence of members, duality and size) and the decision of indebtedness. 

 

2. Hypothesis Development 
Since the works of Modigliani and Miller (1958) who proved the irrelevance of financing decisions of 

companies under the conditions of the perfect market. A large number of theoretical and empirical analyzes have 
been developed to study the determinants of corporate finance decisions against real-world market imperfections. 
Earlier researchers in the field are generally two competing theories, the "Static Trade Off Theory" and the 
"Pecking Order Theory" which assume a great rationality. The study concludes that there is not a universal theory 
of capital structure choice while traditional explanations for capital structure largely repent on the rationality 
assumption of managers. 

Some theorists have incorporated the behavioral dimension into the analysis of the choice of capital structure. 
They explain his choices by the emotions of the leaders. Malmendier and Tate (2005); Malmendier and Tate (2008) 
and Malmendier et al. (2010) formalize the notion of leadership behavior and provide empirical evidence to analyze 
the effects of biased CEOs on the preferences of financing and the choice of capital structure. In the Tunisian 
context, Azouzi and Jarboui (2012) analyze data from 100 firm and find a significantly positive correlation between 
optimism and the choice to apply internal financing (internally generated resources choice) while a negative 



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relationship between optimism and the decision to increase capital. Parallel to the evolution of the capital structure 
theory new governance literature highlights CEO behavior and its impacts on different business decisions. Adam 
and Li (2012) state that the board is a moderator of behavioral biases among leaders. They add that the presence of 
the directors is justified by the forecasts of the valuations errors of the optimistic leaders. In other words, board 
independence is recommended to control the decisions of optimistic leaders. In this section, we examined the effect 
of the board's characteristics on the choice of debt by optimistic leaders. 
 

2.1. Managerial Optimism, Board of Director’s Independency and Debt Choice  
Theorists point out that independent directors are an effective way of controlling the management team. Fama 

and Jensen (1983) suggest that the board is the best internal control mechanism to monitor management's 
behavior. 

Baker et al. (2007) consider that the company's policies are appropriate for overvaluation and undervaluation of 
firms by market. External directors are aware that the market has undervalued their firms. They are reluctant to a 
new recourse to external funding mode. These directors help the optimistic manager (overstates the ability of his 
company) to make rational decisions. This implies a negative relationship between board independence and debt 
financing.  

The presence of asymmetric information implies the increase in the cost of external financing methods (debt 
and equity choice). This encourages external director’s members to minimize the use of its leader in external 
financing mode. This uninformed director aware of the bias of its leader seeks to limit the risk of the company by 
refusing the external financing mode (debt). This implies a negative correlation between the external directors and 
the firm debt ratio. 

Schwizer (2013) shows that companies with the best economic performance in the list have independent 
members on the board. The author adds that the high level of performance is justified by the moderating effect of 
the board's independence on the behavioral biases of the manager at the evaluation of investment opportunities and 
risk decision. The presence of independent members reduces the manager's level of optimism and encourages him 
to make less risky decisions, including limiting the use of debt. Chang et al. (2012); Fauzi and Locke (2012) affirms 
this finding. The authors found that the level of indebtedness decreases in the presence of good governance 
signaled by a high level of independence. 

Malmendier and Tate (2005); Malmendier and Tate (2008); Malmendier and Tate (2015) find that the 
optimistic manager will give priority to self-financing, then debt and ultimately to the issuance of shares. This 
preference for self-financing is justified by the presence of effective control. In fact, the presence of independent 
auditors obliges the manager to minimize the financial risk of his company by a weak recourse to the external 
modes of financing (debt choice and equity). This implies a negative correlation between the external directors and 
the firm debt ratio. 

Ben-David et al. (2010) add that optimistic managers will tend to underestimate the volatility of their 
company's future cash flows or overweight their private signals relative to public information. This 
underestimation of risk prompts optimistic leaders to make a risky decision (the choice of debt). It is for this reason 
that shareholders require a high level of independence in the board of directors. Thus, the presence of a highly 
qualified director to assess the real risk of the company limits the biased decision (debt choice). This implies a 
negative correlation between the external directors and the firm debt ratio. It is in this context that the current 
work can be done, with an attempt to test the following hypothesis: 
H1: Board of director’s independency (low level of managerial optimism) is negatively correlated with firm debt ratios. 
 
2.2. Managerial Optimism, Board of Director’s Size and Debt Choice  

Size is one of the most important features that can affect board efficiency. According to Jensen (1993) and 
Lipton and Lorsch (1992) a small board can perform its task properly. Thus, a small board limits the sub optimal 
decisions of an optimistic leaders whose rising debt level. 

The board size has a significant impact in determining debt ratio. They concluded that the large board of 
directors, making firm more inclined to take risks and seek external financing resources. This is explained by the 
fact that the presence of a significant number of administrators implies the increase of the cognitive conflicts and 
reduces board effectiveness in the control of the leader. This optimistic leader of his company's capabilities is aware 
of weak control uses more risky decisions whose preference for debt. 

Gervais et al. (2011) have shown that the capital part is the leader is a means of convergence of interests with 
these shareholders. The goal of a leader is to counter the control mechanisms, including the board of directors. In 
other words, an optimistic leader increases his share of capital to limit the effectiveness of small board and make 
risky decisions including the debt choice. 

Jiraporn et al. (2012) find that firms whose managers are more entrenched (with large Board of directors) are 
significantly more leveraged. These authors then argue that debt and governance play the same role and may 
substitute for each other.This is also known by the optimism of the leader. Thus, an optimistic leader prefers 
indebtedness to signal his good management. Debt has a decisive role and becomes a perfect substitute of weak 
control of the board of director’s. So a high level of debt is used by the optimistic CEO and the presence of a large 
Board. 

Azouzi and Jarboui (2014) show that optimistic leaders overestimate the expected return on their projects. 
They use internal financing methods for the payment of dividends. They seek to make their shareholders more 
loyal and limit their control (small board). Consequently, they use the external mode of financing the least risky 
(debt) to concretize all the possible opportunities of the company. This asserts that even in the presence of an 
effective control (small board) the leader opts for the debt choice. 

The increase in the number of board members to increase in the debt ratio.In other words, in large board there 
are problems of coordination, communication and decision-making. In this context the leader becomes freer in the 
management of the company. This optimistic and less controlled leader opts for risky decisions, including the debt 



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choice. This implies a positive correlation between the board size and the firm debt ratio.It is in this context that 
the current work can be done, with an attempt to test the following hypothesis: 
H2: An optimistic leader in a large board prefers more debt than a rational leader. 
 

2.3. Managerial Optimism, CEO Duality and Debt Choice  
CEO duality is defined as the occupation of the post of the executive manager and the chairman of the board of 

directors at the same time (Jensen, 1993). The association between the supervisory and management functions 
increases the leader optimism level. This optimistic leader will tend to invest in new projects. They are forced to 
choose debts because the presence of a strong asymmetry of information implies a higher premium demanded by 
the investors in case of an issue of new securities. The choice of debt is also intended to reduce the agency conflict 
between the optimistic leader and these shareholders. 

Fairchild (2005) adds that the optimistic leader who believes he controls the risk of his business uses risky debt. 
The author shows that this leader makes arbitration between the probability of success of a project and its costs of 
funding. This arbitrage is affected by the ability to evaluate alternatives, including the optimism bias. In other 
words, the a dual function favor (CEO duality) increases the level of leader optimism.  This bias impels him to take 
risky decisions including the preference for indebtedness. 

Petra and Dorata (2008) study the link between the level of incentives and corporate governance structures. 
The authors conclude that the presence of duality CEO reduces the level of incentives. in other words, duality 
increases the leader's level of involvement and optimism. This optimistic leader has more motivation to work in the 
interests of these shareholders. They are aware that the sub market evaluates the value of their business. He has 
urged to issue debt securities to report the solvency of his business. He seeks to benefit from reports debt. 

Abor (2007); Vakilifard et al. (2011) and Mokarami et al. (2012) argue that duality increases the manager's 
preferences for debt choice. Thus, duality reduces communication conflicts and favors the centralization of the 
decision. This decisional centralization facilitates the function of the leader. This context favors the emergence of 
optimistic leaders. These optimistic leaders seek to realize all the possible investment opportunities of their 
companies. They choose debt as a method of financing to avoid hostile public offers. Their objectives are to 
guarantee their places in the company. 

Dufour and Molay (2010) postulate that the level of indebtedness of companies limits the risks of taking 
control. An optimistic (CEO duality) leader about the growth opportunities of the company with its interest to 
limit the risks of hostile acquisition. He uses a dual function to find a limited debt threshold, the risk of hostile 
acquisition and the good health of his business. It is in this context that the current work can be done, with an 
attempt to test the following hypothesis: 
H3: CEO duality (high level of optimism) is positively correlated with firm debt ratios. 
 

3. Research Method  
3.1. Data     

To  note,  the  empirical  tests  are  based  on  75  non-financial  Tunisian  firms  during  the  2016 fiscal year 
(34 are listed companies and 41 are non-listed companies, see Table 1. All  financial  firms  (including  banks)  
outing  to  the  fact  that  this  business  sector  is  regulated  and  likely  to  have  fundamentally  different  cash  
flows  and  characteristics.    Firms  with  insufficient  data  regarding  about  emotional  characteristics  and  the  
board  of  director’s composition are also excluded. The board’s compositions, as well as financial characteristics 
data, are gathered from the BVMT annual report.   

Emotional   and   psychological   characteristics   are   collected   by   means   of   an   administered 
questionnaire. 
 

Table-1.Visited compagnie. 

Initial BVMT  sample for 2016 81 
Financial firms  (25) 
Other non-financial firms  49 
Insufficient data to CEO emotional characteristics’ (18) 
Insufficient data to board of directors compositions (12) 
Final sample 75 

                                                 

3.2. Variables’ Measurement 
The objective of this section is to determine the variables’ measurement. 

 

3.2.1. Debt Level 
We observe  several  authors  (Hovakimian et al., 2004)  have  selected  a  variety  of  variables  that  measure 

the level of debt in the company. Measures such as total debt service ratio. Other shave used the debt ratio in the 
medium and long term (Myers, 2001). The debt ratio in the short term was also used by Titman (1984). As part of 
our analysis we propose to use the debt ratio as a measure of this variable. It should be noted that this ratio is 
calculated by: 

Leverage ratios (LEV) = (total debt / total assets). 
This measure is also used by Koh (2003); Demaria and Dufour (2007); Jarboui and Olivero (2008); Ben-David et 

al. (2010) and Sahut and Gharbi (2008); Azouzi and Jarboui (2012).  To show that the manager uses debt or not, we 
can use the change in debt ratio. A positive change indicates the use of debt. 
Leverage ratios variation = LEVN–LEVN-1/ LEVN-1 
 
 

3.2.2. Managerial Optimism 



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The questionnaire focuses on evaluating and scoring of the CEO optimism level the questions have been 
inspired from the questionnaires formulated by the Fern Hill and Industrial Alliance companies Table 2. The 
emotional bias takes two follows:  

 1 if the individual has a high level for optimism.  

 0 if not. 
 

Table-2. Items used in the optimism scale (10 Items). 

Items Factor 1 : 
Estimate of 

future returns 
25.17% 

Factor 2 : 
Estimate of 

growth 
opportunities 

18.18% 

Factor 3 : 
Ability to solve 

problems 13.75% 

Factor 4 : 
Overestimation 
of the personal 

situation 
10.40% 

1. Which of the following best describes 
your financial goals? 

0.832514    

2.You are very comfortable with 
investments that have the potential for 
high returns even though they will 
periodically drop in value 

0.773015    

3.My previous investments  are always 
successful thanks to my specific skills 

0.713358    

4.How do you see the next twelve 
months? The general situation of your 
company's  

 0.696078   

5.I intend to increase my investments in 
the next 12 months 

 0.808931   

6.In times of uncertainty, I usually 
expect the best 

 0.761058   

7. How do you see your profit forecasts?   0.637175  
8. When something has pissed me off, I 
can calm down quite quickly 

  0.705453  

9. Your future seems more interesting 
than your passing 

   0.636784 

10. In my daily life, my emotions often 
annoy me 

   0.815148 

 

3.2.3. Board of Directors 
According to Fama and Jensen (1983) the board of directors must meet certain characteristics of independence, 

size and structure in order to fulfill its control role effectively. 
 

3.2.3.1. Board Size 
Noteworthy, the board’s effectiveness highly depends on the number of directors and its size. Relevant 

literature provides no consensus about the direct relationship between the board size and effectiveness. On the one 
hand, a larger board is less likely to operate effectively and is easier for the CEO to control (Jensen, 1993). On the 
other hand, Yermack (1996) considers that the board size is a factor among a range of  variables that might 
influence executive compensation and company  performance. 

In this study the directors’ board size (BSIZE) has simply been measured by the number of its members 
(Dechow et al., 1996; Yermack, 1996; Pigé, 1998; Coulton et al., 2001). 
 

3.2.3.2. Board Independence 
The  different  characteristics  pertaining to the board’s independence  are  measured  by  the following 

variable: BIND is defined  as the  percentage of  the  board members who are simultaneously independent  and  
non-executives which is equal to the number of outside directors  divided by the total board members (Forker, 
1992; Wright, 1996; Haniffa and Cooke, 2000; Coulton et al., 2001).  
BIND = number of outside directors /total board members 
 

3.2.3.3. CEO Duality 
Board chairs role consists in monitoring the CEO (Jensen, 1993).   The latter supposes that CEOs who also 

hold the position of board chair (Duality) exert an undue influence on the board, compromising the strength of the 
board’s governance. The board chairs characteristics are defined by DUAL = 1 if the CEO also owns a board chair 
and 0 otherwise Table 3 presents the characteristics of boards of directors of the 75 Tunisian companies included in 
our study. Tunisian companies are run by independent boards, medium (seven directors) and not dominated by 
CEOs. 
 

Table-3.Board of directors’ characteristics. 

Variable Mean Std. Min Max N 

Entire board 9.50 3.20 4 12 75 
Outside  directors 3.27 1.38 1 4 75 
Affiliated directors 2.47 1 1 3 75 
Inside directors  4.20 1.67 1 5 75 
CEO Duality 0.32 0.55 0 1 75 

 

 



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3.2.4. Control Variable 
3.2.4.1. Ownership Concentration 

In our study, we will adopt the measure chosen Shabou (2000) adapted to Tunisian context. This variable  is  
dichotomous;  it  is  set  to  1  (value  0)  when  the  percentage  held  by  the  block  holder  is  greater  (less)  than  
50%.  The  companies  where  the  shareholders  hold  at  least  50%  of  the  capital  were qualified as heavily 
concentrated.  
 

3.2.4.2. Firm Age  
In this study companies are divided into two groups, a business young and a mature company. This variable is 

dichotomous where a young firm refers to a company that operates less than five years old takes the value 0 and a 
mature firm is greater than five years which takes the value 1. 
 

3.2.4.3. Firm Size  
As noted by Ball and Foster (1982) size was used to represent the competitive advantage of a firm and the 

ability of the management team. So we can implicate size as a signal about the effectiveness of governance 
mechanisms. This is why we introduce size as a control variable for this research. 

This variable can be measured in different ways. The size of the business can be measured in several ways, such 
as total assets, capital invested, turnover, number of employees, market value of business and equity. 

We will retain the criterion of capital invested whose TAI variable is an ordered multinomial variable from 
which it takes 1 if the capital invested is less than 100 million dinars (Md), 2 if the capital invested is between 100 
million dinars and 500 million dinars and 3 if the capital invested is more than 500 million dinars. 
 

3.2.4.4. CEO Seniority  
Seniority reflects the executive's experience expressed in years spent in the company. This variable may reflect 

the leader's experience, skills and relationship network. The leader's past can have a positive or negative effect on 
the degree of his optimism. 

This variable is dichotomous (Pigé, 1998) it takes the value 0 for a new officer with a seniority of less than 5 
years, and the value 1 for a CEO with seniority of more than 5 years. 

 
Table-4.Variables descriptions. 

Class : Phenomena : Mesure : Variables : Predictions : 

Endogens variables  : 
Debt Level debt choice Leverage  ratios  (LEV)= (total debt/ 

totalassets)Leverage  ratios  variation 
= LEVN-LEVN-1/LEVN-1 

LEV 

Exogenous variables : 
 LEV 
Optimism 
 
 

Directors 
overestimate capacity 
of their  firms 

The questionnaire obtained score OP + 

Board of 
Directors 

Board implication in 
the decision 

Number of its members BSIZE 
 

+ 

The presence of 
independent members 
in the board 

Number of outside 
directors /total board members. 
 

BIND 
 

- 

CEO also owns the 
board’s chair 

1 if the CEO also owns the board’s 
chair and 0 otherwise 

DUAL + 

Controls variables: 
Ownership 
concentration 

shareholder involvement 1  when  the  
percentage  held  by  
the  block  holder  is  
greater  than  50% 
and 0 otherwise.   

OC + 

Firm Age Firms signaled reputation  1 if firm is greater 
than five years old 
and 0 otherwise.   

FIAGE + 

Firm Size Firms signaled performance 1 if the capital 
invested is less than 
100 million dinars 
(Md), 2 if the capital 
invested is between 
100 million dinars 
and 500 million 
dinars and 3 if the 
capital invested is 
more than 500 
million dinars. 

FISIZE + 

CEO Seniority CEO signaled experience 1 if the CEO is at the 
company more than 5 
years and 0 
otherwise.   

SENI + 

CEO Financial 
Education 

Assessment of financial decisions 1 if the CEO to a 
financial education 
and 0 otherwise.   

FIEDU - 



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3.2.4.5. CEO Financial Education 
This variable is dichotomous where a leader who has a financial education takes the value 1 and a manager who 

has gone through an education other than financial takes the value 0. 
For the purpose of simplification, we summarize the measurement of each of the model's variables, its name and 

its expected influence on the debt decision in the Table 4. 

 
4. Empirical Results 

We will check the relationship between managerial optimism, the board of directors and the debt decision 
using our model. In this costume, we describe in detail the different tests that are performed. 
 

4.1. Empirical Model 
Y= α + α1 OP + α2 BSIZE + α3 BIND + α4 DUAL + α5 OC + α6 FIAGE + α7 FSIZE+α8 SENI+α9 FIEDU +ξ. 

Where: 

 Y: the firm debt choice (LEV).  

 OP: the score of optimism. 

 BSIZE: the board of director’s size. 

 BSIZE: the board of director’s independence. 

 DUAL: CEO duality. 

 OC: the Ownership concentration. 

 FIAGE: the firm age. 

 FISIZE: the firm size. 

 SENI: CEO seniority. 

 FIEDU: CEO financial education. 
 
4.2. Empirical Tests 

We opted for the binary logistic regression on the various variables: This is to explain the effect of managerial 
optimism level on the involvement of the board of directors in the control of debt choice by appealing to the 
different variables selected. 

 

4.3. Results 
 

Table-5. Debt choice results. 

Variables Bêta Significance Expected 
relationship 

Reached 
relationship 

Constant  10.378 0.013278   

Optimism Future Returns Estimate  1,233 0,022** + - 
Growth Opportunities 
Estimate  

1,588 0,006*** + + 

Ability To Solve Problems 1,276 0,020** + + 
Personal Situation Overestimation 0,294 0,512 + + 

Board of Directors BSIZE -5,099 0,008*** + - 
BIND 5,867 0,003 *** + + 
DUAL -0,227 0,825 + - 

FISIZE -0,246 0,764 + - 
FIAGE -23,619 0,999 + - 
OC 3,255 0,007*** + + 
SENI 26,332 0,998 + + 
FIEDU -3,445 0,003*** - - 
Cox and Snell ratios R2 0,476 

Model Χ2 48,506                                P=0,000003 *** 

-2 logs of likelihood 45,524 
N 75 

       Note: **, *** respectively significance at 5% and1%. 
 

The results appearing on Table 5 show that managerial optimism and board characteristics explain 47.6% of 
the debt decisions of the companies in our sample, (R² = 47.6%). 

The examination of the results concerning the variables related to managerial optimism shows a negative and 

significant relationship between the criterion of the estimation of future returns and the debt  decision (β= -1.233, p 
= 0.022).This can be explained by the fact that an optimistic executive who overestimates future returns applies 
less debt to minimize the financial cost and loyalty to these major shareholders. Overestimation of future returns 
implies a rise in the expected dividend level. The expected dividend increase leads to a valuation of the shares and 
favors the equity choice relative to the debt. 

The results show the existence of a positive and significant relationship between the criterion of the estimation 

of growth opportunities and the decision of indebtedness (β = 1.588, p = 0.006).This implies that a optimistic CEO 
who is accustomed to overstating the investment opportunities of his company in times of uncertainty will increase 
his commitment to risky decisions (including the choice of debt). They are planning their ability to repay their 
debt. On the other hand, he believes that his company is undervalued by the market and avoids the equity choice. 
They therefore prefer debt. 



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A positive and significant relationship in the range of 5% is between problem solving ability and debt level (β = 
1.276, p = 0.020).This relationship is explained by the fact that an optimistic leader overestimates his skills to 
reduce risks. This led him to choose riskier decisions, including the preference for additional debt choice. 

The results also show a positive and insignificant relationship between the overestimation of the personal 
situation and the debt ratio. The non-significance of this criterion of optimism is justified by the vigilance of the 
agents. This is one of the rooting means is to ignore the personal situation in the work setting and in the strategic 
decisions making. 

The results show a positive and significant relationship between the percentage of independent external 

directors on the board and the firms debt level (β = 5.867, p = 0.003).The presence of independent directors gives 
the company the benefit of technical expertise and privileged environmental information in order to converge the 
interests of the principal with that of CEO. This convergence gives more freedom for the optimistic leader to 
increase the frequency of achievements of new projects. To finance these projects, optimistic leaders prefer debts to 
ignore the sharing of profits incurred on new shareholders in case of equity choice. This implies the increase in the 
debt level of the company. In other words, the existence of independent members on the board of directors gives a 
good signal on the leading part of the company. The latter seems to have a favorable and easier access to debt. 

We also note that the debt level is in negative relation and not significant with the CEO duality (β = -0.227, p 
= 0.825).This is justified by two factors, debt and the nature of Tunisian firm. In fact, if a company is in debt, it is 
subject to the power of an external auditor who does not accept the presence of a CEO as chairman of the board.On 
the other hand, there is a large percentage of family businesses in Tunisian companies. This negatively affects the 
significance and robustness of responses (72% of companies are family businesses). 

The regression also shows a negative and significant relationship between board size and debt ratio (β = -
5.099, p = 0.008).A plausible justification for this result is that an optimistic manager who seeks to increase the 
value of the company prefers to have greater discretion over his future investments. Indeed a small board of 
directors can keep this discretion. His asymmetry leads to undervaluation of the new securities issued. As a result, 
the choice of financing through equity choice will be more expensive. So a little advice will encourage debt choice. 

There is a positive and significant relationship between indebtedness and ownership structure of the firm (β = 
3.255, p = 0.007).The presence of block holders is considered a disciplinary governance mechanism associated with 
a high level of control over the leader. Thus, the strict control and discipline exercised by the block holders helps to 
align the manager's behavior with the company's objectives and limit his discretionary attitude. An optimistic 
leader is aware of the risk of losing his job and reputation on the market. He seeks to signal his good management 
by a preference for debt. 

There is evidence of a negative and insignificant relationship between firm size and debt level (β = -0.246 p = 
0.674).Due to better investor knowledge, large companies can issue securities more easily without being under-
valued than small businesses. 

Another interesting result is that the age of the company can increase the debt ratio (β=-23,619, p=0.999).This 
is justified by the fact that mature firms have more experience with the adverse effects of debt. They are therefore 
more attentive in their preferences for debt. 

The correlation between the debt ratio and CEO seniority is positive and not significant (β = 26.332, p = 
0.998).The seniority of the leader leads him to maintain relations with the market. These contacts lead to strong 
links with the lenders so the use of debt as a means of financing will be easier. 

Finally our results indicate a negative and significant correlation between the CEO financial education and firm 
debt level (-3,445, 0.003).The financial education of the leader leads him to make rational financial decisions 
including the choice of a low level of debt.This manager is more aware of the risk of bankruptcy of the company in 
the case of a high level of debt. Financial education therefore reduces the negative effects of optimism and 
psychological bias on managerial decisions. 
 

5. Conclusion 
In this article, we have advanced an original essay that aims to discuss the effect of managerial optimism and 

board characteristics on the on funding preferences and capital structure choice.Starting from the role of the 
introduction of the behavioral dimension in the enrichment of the analyzes of corporate governance and capital 
structure, we aim to note the effects of optimism bias on the decisions of senior managers in Tunisia companies, 
this work has attempted to achieve the following objectives: 

 Present the notion of managerial optimism and its integration into the theory of corporate governance and 
the theory of capital structure. 

 Studying the impact that executive optimism would have, directly or indirectly, on board control 
effectiveness and consequently on the debt decision. 

 Verify the presence of a relationship between the optimism bias of the leader, the board of directors and the 
debt level. 

The theoretical analysis presented argues in favor of the direct impact of CEO optimism on the effectiveness of 
control exercised by the board of directors and subsequently on the debt decision. Even more we have presented 
other actors who can affect the bias of optimism and the decision of indebtedness. These actors are the 
characteristics of the company (size and age) and the characteristics of the leader (seniority and education). 

The empirical part attempted to fill a deficit in research in behavioral finance, by presenting a survey on the 
executives of large private companies in Tunisia. The analyzes of the data collected revealed the importance of 
leadership optimism in the debt decision. The empirical analysis of the relationship of managerial optimism with 
the board of directors (size of board, presence of external and cumulative functions) and the decision of financing by 
debt shows different results. In general, there is a positive impact of managerial optimism on the level of debt of 
Tunisian companies. Our analyzes revealed the importance of CEO optimism in the debt decision.It has been found 
that an optimistic leader prefers more debt even in companies ruled by independent boards.On the other hand, the 
results analyzing the hypotheses 2 and 3 regarding the size of the board and the combination of CEO and Board 



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Chair does not confirm our theoretical analysis. This affirms the complementary relationship between our three 
notions. 

Our research is only an attempt to focus the spotlight on the effects of the behavior of executives of Tunisian 
companies on the efficiency of board control and on the choice of means of financing. So it is necessary to present 
the following recommendations to Tunisian companies: 

 Apply psychological tests instead psycho-technical tests in the selection of frames to detect behavioral 
kicks. 

 Implementation of emotional intelligence training programs designed to give the leader the ability to 
understand and control his emotions. 

 

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