Managerial overconfidence may alleviate which of the following concerns?

Question

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Managerial overconfidence may lead managers to take risks and invest in projects even if they have negative net present value (NPV). This can alleviate the underinvestment problem, which is the tendency for managers to not invest enough in profitable projects due to a fear of failure or a desire to hoard resources. However, overconfidence is unlikely to alleviate the other concerns listed, as they are unrelated to investment decisions. Managerial overconfidence can lead to higher levels of investment, which may alleviate the underinvestment problem. When managers are overconfident, they may be more likely to undertake risky and innovative projects, which can result in higher returns. However, this can also lead to negative NPV projects being chosen and a failure to liquidate problem. It does not directly address the insider information problem.

Managerial Overconfidence May Alleviate Which of the Following Concerns