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Empirical Research of Listed Company Managers Overconfidence and Financial Decisions

Author: CuiZuo
Tutor: SunFengYing
School: Jilin University
Course: Business management
Keywords: Overconfidence Financial Decisions Credit Financing
CLC: F276.6
Type: Master's thesis
Year: 2012
Downloads: 162
Quote: 0
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Abstract


Financial issue, as an important part of modern financial theory research, is alwaysthe focus of theory industry and enterprises. Chinese researchers’ researches relatedfinancial decisions which are based on behavior financial theory are still in the earlystage. Behavior financial theory champions the opinions that investors andentrepreneurs in listed market are not totally reasoning, which results that theircognition bias and limitations would influence financial decisions, corporategovernance and then corporate value. In this paper, reasoning economics hypothesisis not included, and author tries to do the empirical research depended on the basis ofmanagers unreasoning, in specific, investigating and testing if managersoverconfidence have great influence on financial decision.Through the summary of empirical researches about foreign and Chinese behaviorfinancial theory and financial decision, this paper involves the facts thatoverconfidence as a kind of psychology features exists in managers, and it wouldmake influence on financial decision such as capital structure, debt maturity structureand credit financing; simultaneously, corporate governance level would make aneffective and efficient restriction to the managers unreasoning behavior. In order tofurther support and test the theory above, this paper uses the companies in Chineselisted market which report earnings projections in the third quarter between2007to2010as statistics, and utilizing earnings bias value as the measure of manageroverconfidence. By running descriptive statistics, correlated analysis and regressionanalysis, the paper tests the relationship between managers overconfidence andfinancial decisions.Based on the research and analysis above, the conclusions are as followings,firstly, manager overconfidence has significant positive relationship with asset liability ratio, which indicating that overconfidence managers are inclined to higherlevel liabilities. Secondly, in the companies with higher level independent directors,manager overconfidence behavior could be supervised and restricted effectively.Thirdly, manager overconfidence has significant positive relationship with short-termliability ratio, which indicates that overconfident managers are more inclined toshort-term liabilities. Lastly, managers’ overconfidence does not have significantpositive impact with credit financing, but they will increase the rate of creditfinancing.As the conclusion, it is necessary to make some constructive recommendations,which are, firstly, to build up the managers’ comprehensive abilities evaluatingsystem and overconfidence warning index; secondly, to build up rational executivesincentive system; thirdly, to strengthen corporate governance structure andindependent director supervising polices.

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CLC: > Economic > Economic planning and management > Enterprise economy > A variety of enterprise and economic > Company
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