An Empirical Research on the Influence of Managerial Overconfidence on Non-efficiency Investment
|Keywords||Managerial Overconfidence Over-investment Under-investment Internal Cash Flow|
As the most basic financial activities of enterprise, the quality of investment has adirect influence upon enterprise value. Unfortunately, in the enterprises of China, there is apervasive phenomenon of non-efficiency investment, including over-investment andunder-investment. Many scholars have been trying to explore the reason of this problemsince the70s of the20thcentury. Among which, the theories of Principal-agent andInformation asymmetry are most classical but they are all based on the “hypothesis ofrational man”. However, man are limited rational and will make mistakes in the process ofpolicy-making. It is indicated in the psychological studies that the phenomenon ofoverconfidence are general in the managers and its impact on investment cannot be ignored.Therefore, it is of great significances to explore into what impacts on non-efficiencyinvestment have caused from a new perspective of managerial overconfidence.On the basis of Chinese particular situation, the paper examines the impact ofmanagerial overconfidence on non-efficiency investment with the theoretical and empiricalmethods from the point of the managerial overconfidence according to the traditionaltheory such as the principal-agent theory, Information asymmetry etc. There are threeconclusions:Firstly, managerial overconfidence is significantly and positively related to company’sover-investment and under-investment. Secondly, the investment-cash flow sensitivity ishigher for company with overconfident managers. Lastly, non-efficiency investmentcaused by manager overconfidence cannot be effectively restrained by corporategovernance variables, namely the proportion of independent directors, the share ratio of thelargest shareholder and the separation of two leadership posts between chairman andpresident.