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Study on the Effect of Managerial Overconfidence and Investment Decision for the Listed Companies

Author: ZhangKeDan
Tutor: LiuBai
School: Jilin University
Course: Accounting
Keywords: Corporate Governance Overconfidence Over-investment
CLC: F275
Type: Master's thesis
Year: 2011
Downloads: 153
Quote: 0
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Abstract

The traditional theory of finance companies \Nothing personal likes and dislikes and emotions this rational behavior of human decision-making, while continuing to seek to maximize their own interests. This assumption, however, can not be a true reflection of the reality of the situation, because some of the anomalies in the capital markets can not be reasonably explained by the classic model of traditional financial theory, thus, behavioral finance theory came into being. The foreign scholars station this new perspective has been successful description of some of the company's financial decision-making behavior abnormal overconfidence in the theory, executives are often distorted one of the factors to promote business investment. In this paper, in Shanghai and Shenzhen listed companies of 2005-2008 data, the integrated use of the two methods of literature analysis and empirical test, to verify the stage of China's economic transformation, when the special governance structure and shareholding arrangements, executives overconfidence whether the company's investment decision-making behavior will have a similar impact, and at the same time want to have some help listed companies to improve their internal governance mechanisms. The course of the study, the first in the introduction section briefly describes the research background, motivation, purpose, meaning, content and method, and draw a roadmap for research, to build up the outline of the article. System combing followed by literature review of the relevant research results at home and abroad. In this section, the first of overconfidence meaning explained, further review of previous studies executives overconfidence literature, the most important is a summary of the brightest scholars in the empirical study which measured overconfidence and overconfidence of managers for corporate investment decisions will be what impact. In this process, not only summarizes the results of previous studies, but also analyzes the limitations of the study, and pave the way for later research. After the General Section of the theory analysis, summarize the status of listed companies in China's current investment behavior, managers of overconfidence and corporate investment behavior characteristics. On this basis, the proposed research hypotheses. Followed by research design part with empirical process as well as the results of analysis section. Draw on previous theoretical analysis, to build a model of empirical research in the study design section, while introducing executives overconfidence, over-investment, the size of the company, corporate cash flow, and other variables. The empirical part of the use of the data of the Shanghai and Shenzhen A-share listed companies from 2005 to 2008, the use of SPSS and EXCEL software, expand the empirical research and descriptive statistics for each model, the correlation statistics and multivariate statistical analysis results expand. Finally, the background of China's capital markets, equity arrangements illustrate the correctness of the hypothesis. After a series of analysis for the results of empirical research, the following conclusions: First, executives overconfidence and corporate investment decision-making behavior there is a significant positive correlation. Executives tend to overestimate their own abilities or items of income and underestimate the risk of investment projects at the same time causing over-investment of the enterprises. Second, over-confident executives more inclined to internal financing. In free cash flow of the enterprise is more adequate when more resources in order to control the listed company, may invest in a lot of the net present value of the negative items, so that excessive investment, this also shows that there is a higher overconfidence executives investment - cash flow sensitivity.

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