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The Impact of the Chinese Listed Company’ General Manager’ Overconfidence on Enterprise’ Investment Behavior

Author: YuanLiMei
Tutor: LvXianZuo
School: Southwestern University of Finance and Economics
Course: Accounting
Keywords: Overconfident executives Investment Investments - free cash Age
CLC: F272;F224
Type: Master's thesis
Year: 2010
Downloads: 284
Quote: 1
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Abstract

The company's investment behavior, as the company added in order to obtain resources, has done its currency assets invested in various forms on the economic behavior of the company's core financial problems. Investment decision as the starting point for financial decision-making, but also the main drivers of the company's growth and future cash flows an important foundation for the growth of the company's business risk, profitability and capital market development prospects of its results of operations and evaluation of an important impact. Investment decisions from a financial point of view, is the company's capital constraints in a given case of investment projects for possible effective options to achieve maximum return on their investments. Therefore in terms of value creation, investment decisions are the company's three most important financial policy decisions. It has a decisive significance for the company's development. That is why, on the investment behavior research has been a hot topic in academia. Early Western investment theory formed in early 1870s, late 1950s, after decades of improvement and development have yielded fruitful results, the theoretical content of the continuous development and deepening of increasingly sophisticated and complete theoretical system, microcosmic, dynamic, contemporary mathematics has become the main direction of development of investment theory. But these theories are based on the investors are rational utility-maximizing decision-makers on the basis of the assumption, and the pursuit of rational self-interest of policy makers the inevitable result. Meanwhile, rational decision-makers can make all the available information on the systematic analysis and selection of the best decisions you make later. However, investors in the real world of rational economic decision-making behavior and there are large differences in the assumptions. Some psychologists and behavioral economists cognitive psychology theory and research into the field of economics, their research results on individual behavior of traditional economics basic assumptions about rational decision-makers questioned. Their research shows that the agent's decision behavior is not only driven by economic interests, but also susceptible to a variety of subjective psychological factors. Overconfidence which affect their investment decisions is the subjective psychological factors. In recent years, Chinese scholars have begun to focus behavioral finance theory, but due to a late start, the majority of our current research is still stuck in the sort of foreign literature and qualitative analysis, based on the person's cognitive psychology is associated with certain social system, history and culture linked to the manager's behavior will be subject to a number of factors such as the country cultural and historical factors, such behavior resulting bias is a \This article hopes to learn from foreign study based on the integration of the \. This article hopes to research ideas in such listed company under China's current executives exist overconfidence phenomenon, providing empirical data and accordingly propose relevant solutions. From a practical sense, the macroeconomic impact of investment behavior is to run one of the factors. Business investment is also an important factor in stimulating economic growth, one of overconfidence caused due excessive investment and other investment in inefficient or failure occurred frequently, seriously hindered the pace of Chinese enterprises. But also affected the healthy and orderly development of China's macroeconomic. Therefore, in the present, China's capital markets and corporate governance structure is not perfect circumstances, how to guide enterprises in scientific and rational investment, how effective use of investment funds, the company's senior management behavior and motivation affect business investment, so far Not in the theoretical and practical aspects of making a clear answer. The country is going through a period of transition economies, developed by the government in the context of emerging stock markets, need guidance and direction from the theory of corporate investment decisions standardized and scientific. Therefore, based on the investment behavior of overconfidence studies for optimizing our imperfect market conditions in the corporate investment decisions, an extremely important practical significance. I hope through empirical research results for the management of listed companies and investors to provide reference and inspiration. This paper is divided into five chapters, each chapter is arranged as follows: Chapter Introduction. Primarily from the standpoint of the theory and practice of research questions and research background, indicating the significance of research and presentation of content and articles framework, this study concluded that the contribution and innovation. Company acts as an investment company in order to obtain resources, appreciation of its currency assets invested in various forms on the economic behavior of the company's core financial problems. Early Western investment theory formed in early 1870s, late 1950s, after decades of improvement and development have made great achievements, but so far the theoretical study of such investments are mostly built on the success of the investment who are rational utility-maximizing decision-makers on the basis of the assumption, and the pursuit of rational self-interest of policy makers the inevitable result. However, investors in the real world of rational economic decision-making behavior and there are large differences in the assumptions. According to the study of decision-makers act driven not only by economic interests, but also susceptible to a variety of subjective psychological factors. This article is the subjective Select investor overconfidence bias, study the relationship between its investment. In this research ideas under the guidance of Chinese enterprises to invest in the decision-making behavior provides a new perspective. The second chapter is the theoretical study abroad related literature review. In this section first foreign literature of the sort and classify. And foreign literature points clues divided into three parts: (1) the causes of overconfidence (2) management of the theoretical basis of overconfidence and Empirical Evidence (3) Overconfidence and Investment Decision empirical research. Then on the domestic company executives Overconfidence domestic research summary. Domestic investors in the company's senior overconfidence overconfidence on investment behavior theory and theoretical studies abroad, domestic related field is still in its infancy. From domestic and international research retrospect because the short time of this research, although scholars unanimously agree that investors in the investment process due to cognitive biases and psychological deviation will produce overconfidence, but overconfidence of investors basic stay on the basis of the qualitative analysis. The third chapter is overconfident executives theoretical foundation, in this part is mainly from overconfidence basic theory, basic theory of investment behavior to be explained in two parts. Which mainly includes the basic theory of overconfidence overconfidence definitions and manifestations. Company mainly on the basic theory of investment behavior of agency theory, asymmetric information theory and behavioral theory of corporate finance these three aspects of the company's investment behavior of a theoretical explanation. The fourth chapter is the senior overconfidence impact on investment made by empirical research model building. This chapter respectively, from motives of senior management and investment relationship between investment and cash flow relationship between the executives and the average age of the relationship between overconfidence, overconfidence quantify this method to measure overconfidence Several aspects of the selection. Based on the above analysis of several aspects of this study formed the idea that: This article from the executives and shareholders to maximize the value of investments between the model, the behavior of the variables included in the model of overconfidence, the study of Chinese listed company executives Overconfidence and The relationship between investment and by observing the investment - cash flow sensitivity analysis showed overconfident executives of the company is being distorted investment decisions, the final inspection overconfident executives influence factors. In the final chapter, based on the above analysis of ideas and basic model proposed article assumes. Chapter empirical analysis. This section is for screening of the sample on the basis of statistical description, according to this basic model established two six derived model regression analysis of the sample. Articles empirical idea is: First use a base model, the introduction of other factors affecting investment control variables in the model, tests show overconfidence investment and the relationship between overconfidence and the relationship with the free cash. Test results show overconfidence Company's free cash flow exists between investment and a significant positive correlation. Meanwhile inspection between overconfidence and investment growth also showed a significant positive correlation. According to the West on matters concerning human experience and familiarity with the positive correlation between overconfidence, but according to the previous verification and investment executives positively related to overconfidence, we can infer that the average age of executives greater respect more likely to exhibit overconfidence, while also showing age and positive correlation between investment. So in subsequent empirical research, this paper more than the default inference, based on the model overconfidence dummy variable substitution is the average age of executives, use this model to examine the average age of executives and between overconfidence relations and the relationship between age and investment. However, it seems from the regression results, in this paper the Chinese listed companies selected for the study of regression study, did not follow the reasoning in this article as: senior executives age and overconfidence behavior is a positive correlation between executives Overconfidence and Corporate Investment showed a positive correlation between age and are executives and corporate investment also showed positive correlation. In this study found that executives of age and did not show a positive correlation between investment and even the results of the regression coefficients in the expression is negative, and the correlation was not significant. That context executives in China's age and overconfidence did not show a positive correlation between investment and the company even showed a negative correlation. Sixth chapter is to analyze and summarize the empirical results presented in this paper extends the limitations and hence the relevant issues in the future to deepen and expand. Given overconfidence as a type of crowd psychology inherent characteristics and behavior rules, which objectively exists in some listed companies in senior management, and we have come to realize executives overconfidence on corporate investment decisions and other major negative impact, we only through the improvement of corporate governance structure, strengthen the Company's system, restricting executives overconfidence, the last part of the article combines empirical research proposed a reform vision. In this paper, based on related research at home and abroad, the paper made the following two innovations: (1) In addition to this overconfidence and investment and cash flow correlation between attention, but also concerned about the sample and the average age of senior The correlation between overconfidence. This article hopes Recognizing overconfident executives have a negative impact on investment, based on the overconfident executives to explore the impact of the factors. (2) the time period selected, the paper selected financial data of listed companies in the last three years as a research object, 2006 is the first year of China's listed companies equity incentive, January 1 China Securities Regulatory Commission issued the \Trial) \So far, the equity incentive has been implemented for three whole years, basically did not experience complete an exercise period, this article uses the term senior management changes in the number of holdings as a measure of overconfidence indicators. Study found that the company's executives generally exist in overconfidence emotions.

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