An Empirical Research On The Influence Of Managerial Overconfidence On Corporate Financial Decision-making

After the 1980s, with the rise of behavioral finance theory, scholars have recognized that the non-rational of managers and investors may have effects on the company's decision-making and assets pricing. The generation and development of behavioral corporate finance theory has attracted wide concerns from scholars and becomes a hot off the press in western financial academic circle. this paper attempts to study the following issues:Whether the managers of Chinese listed companies have overconfident psychological biases? Whether managerial overconfidence will affect the listed companies' financial decision-making? What effects will managerial overconfidence have on financial decision-makings of Chinese listed companies?This paper, under the basic framework of Behavioral Corporate Finance Theory and based on the theoretical basis of analysis, uses the data of Chinese listed companies from 2001-2006 to test the influence of managerial overconfidence on Chinese listed companies' corporate finance decision-making problems like mergers and acquisitions, investment behavior, financing behavior and dividend policies. This article works out a number of important relevant conclusions, and gives concrete political proposals. The full-text is divided into seven chapters as follows.Chapter 1 is introduction. This chapter introduces the whole paper briefly. Firstly, it explains the background, subject and value of this paper, and then the content, the structure and the study methods. Lastly, it discusses the innovations, drawbacks of this paper and looks forward to the future research on this study.Chapter 2 is the theory analysis and comments on relative literatures of the relationship between managerial overconfidence and corporate finance decisions.Chapter 3 uses event study to examine the performance of mergers and acquisitions and presents that conducting three or more than three mergers and acquisitions within a 3-year period can be used as the measure of whether the managers are overconfident or not.Chapter 4 empirically examines the influence of managerial overconfidence on the corporate investment behavior.Chapter 5 examines the influence of managerial overconfidence on corporate financing behavior.Chapter 6 examined the influence of managerial overconfidence on the corporate dividend policy.Chapter 7 is about the research conclusion and policy proposals. Based on the theory analysis and empirical study in the former chapters, this chapter summarizes the research conclusion and make policy proposals accordingly.This paper is going to make creative exploration from the following aspects. Firstly, this paper tries to find a measure of the managerial overconfidence which keeps with both the principle of physics and economics and the reality of China. Based on evaluating the previous measures of managerial overconfidence and taking the reality into account, this paper uses conducting three or more than three mergers and acquisitions within a 3-year period as the measure of managerial overconfidence. This bold attempt in behavioral corporate finance field provides a useful reference for future research in this area. Secondly, this paper seeks to verify behavioral corporate finance theory, especially the adaptability of managerial overconfidence hypothesis in China. This paper uses a large number of empirical studies to confirm the managerial overconfidence hypothesis can explain the Chinese listed companies'financial decision-making behavior. Thirdly, this paper seeks to study the influence of managerial overconfidence on corporate financial decision-making behavior comprehensively and systematically. From the aspects of mergers and acquisitions behavior, investment behavior, financing behavior and dividend policy, this paper systematically confirms that managerial overconfidence has significant influence on corporate financial decision making. Fourthly, this paper does original research in the influence of managerial overconfidence on the corporate dividend policy. In the studies of behavioral dividend theory before, most studies of scholars concentrate on catering theory of dividends, substantial shareholders expropriate minority shareholders'interest and so on, this paper broads the area and method of behavioral dividend theory.