Study On The Effect Of Managerial Overconfidence And Investment Decision For The Listed Companies

Traditional finance theory has an important assumption that is"rational economic man" hypothesis, it is to regard decision makers as be rational, seeking to maximize their own interests, but this assumption runs counter to the reality of real life. Empirical experience has shown more and more evidence that traditional financial theory and the classical model have been unable to give a reasonable interpretation of anomalies in capital market, hence, behavioral finance theory was born. Scholars aboard gradually use the behavioral finance theory to explain some of the financial decision-making behaviors of the company. In the theory, managerial overconfidence is one of the elements that due to overinvestment in company. We plan to put managerial overconfidence as a starting point, based on the data of Shanghai and Shenzhen listed companies in 2005-2008, using literature review and empirical tests combination method to explore the impact of manager overconfidence on company's overinvestment behavior in China is the same as other countries, and hope that in our unique equity institutional arrangement, whether the internal governance mechanisms can ease over-investment behavior caused by manager excessive self-confidence, so give policy recommendations about the internal corporate governance mechanisms of listed companies.The specific contents of the article are as follows: first of all, there is an introduction. This section introduces the research background and motivation of this article, purpose and meaning, content, research methods, research process and the innovation of this paper. Second: literature review. This section summarized the literature about the variables relevant to managerial overconfidence. First define the word of overconfidence, then review the literatures on managerial overconfidence, and the most important is to summarize index and methods about measuring managerial overconfidence and overinvestment in empirical research of the domestic and foreign scholars, followed by screening and summarizes the relevant literature about company's manager overconfidence on the effect of over-investment behavior, Finally, comb that research outputs about corporate overinvestment introducing in corporate governance. Third: Theoretical Analysis and assumptions. This part firstly gives an interpretation of manager irrational behavior expression. Then summarize not only the condition of investment in the listed companies in China, but also the characteristic of managerial overconfidence investment in companies. And start theoretical analysis and then propose hypotheses. Forth part: Research Design Based on theoretical analysis, this article designs this empirical research model, introducing the manager overconfidence, over-investment level, company size, cash flow, and other variables, and using data of the three years of 2005-2008,with the software of Excel and SPSS to start empirical research. In the part of empirical analysis is the statistical analysis result of the empirical model checking. In this paper, we carried out descriptive statistics, correlation and multivariate statistical analysis of models, combined with our capital markets, equity arrangements background to explain the results of research hypotheses.Through this research, this paper gives the main results as follows: First, the managerial overconfidence is positively related to the investment behavior. They make the decision of overinvestment just for their over estimating their ability, or underestimating the risk of investment. Second overconfident managers have internal financing preference, they prefer the company's internal cash flow, because they think the higher cost of equity financing, and the dilution of shareholding, while the debt financing not only to accept the many limitations of creditors, but also bear higher financing risk. Therefore, they will be more willing to use its own internal cash flow for investments; there is management opportunism to them. When the enterprise cash flow is ample, it would increase their investment desires, triggering over-investment, which shows that they have investment cash flow sensitivity.