Study on the Effect of Investor Irrationality and Manager Irrationality on Corporate Investment Behavior
|Keywords||Corporate investment behavior Investor irrationality Managerirrationality Investor sentiment Investor herd behavior Manageroverconfidence Manager myopia|
In rencent years, the phenomenon of investment behavior distortion often appearsin the the Chinese companies. To some extent, the principal-agent theory can explainthis phenomenon. But the “rational economic man” hypothesis, which is implied in thistheory, is inconsistent with the actual situation. Thus this theory is questioned bybehavioral finance theory. Moreover, more and more anomalies in financial market andabnormal financial behaviors in companies show that, cognitive bias ofdecision-makers and the market’s irrationality will directly influence the process andresults of decision making, and it is hard to put these all into the category of traditional“rational economic man” hypothesis. So the study on the effect of investor irrationalityand manager irrational on corporate investment behavior, which are given more andmore attention in academic circle, become a hot issue at present.After determining the deficiency of the existing researches, this paper defines theconcept of corporate investment behavior and analyses the mechanism of action of theeffect of investor irrationality and manager irrationality on the corporate investmentbehavior firstly. Then researches on the effect of investor irrationality and managerirrational on corporate investment behavior with gradually relaxing rationalityhypothesis, specifically includes the study about the effect of investor sentiment,investor herd behavior, manager overconfidence and manager myopia on corporateinvestment behavior. This paper mainly discuss the effect of investor sentiment andmanager overconfidence on corporate investment behavior when put investorirrationality and manager irrationality into a research framework. At last, put forwardrelevant policy recommendations for listed companies.The empirical researches of this paper select A-shared listed companies inShanghai and Shenzhen stock exchange market as research sample. The empiricalresults of the study on the effect of investor irrationality on the corporate investmentbehavior show that, the investor sentiment plays an important role in promotingcorporate investment behavior and earnings quality plays a positive regulatory role inthis process. Moreover, the buyer’s herd behavior has positive effect on the level ofcorporate investment, while the seller’s herd behavior has inhibitory effect on the levelof corporate investment. And the degree of influence on corporate investment variesbetween the buyer’s herd behavior and that of the seller’s. The empirical results of the study on the effect of manager irrationality on thecorporate investment behavior show that, manager overconfidence plays a significantrole in promoting corporate investment spending, while the effect of manager power onthe corporate investment spending isn’t significant, but to strengthen the influence ofmanager overconfidence on corporate investment behavior. The influence on enterpriseinvestment spending from manager overconfidence differs as a result of various powerintensity from different manager; so as the effect from manager power to enterpriseinvestment spending differs under the condition of whether manager is overconfidenceor not. In addition, there is a positive relationship between manager myopia andcorporate temporary investments. And the temporary investments of firms withshortsighted managers will ruduce corporate profitability and performance in the futureand increase corporate risk, but can not cause them into finacial distress currently.The empirical results of the study on the effect of investor irrationality andmanager irrationality on the corporate investment behavior show that, the investorsentiment plays an important role in promoting manager overconfidence. Furthermore,manager overconfidence plays a part of the intermediary role in the influence processof investor sentiment on corporate investment behavior, which means there is anindirect influence path between investor sentiment and corporate investment behavior.This study has important theoretical value and practical significance. It not onlyhelps us have a further understanding of investor sentiment, investor herd behavior,manager overconfidence and manager myopia, but also expand and enrich the researchin the field of behavioral finance. In addition, it breakthrough the traditionalinterpretation of agency theory and information asymmetry theory to thenon-efficiency investment behavior in enterprise, and provide important new referenceevidence to strengthen enterprise supervision, keep the enterprise sustainedcompetitiveness and realize the benign development of the enterprise.