The Research Of Managerial Overconfidence And Motives Of Firms Diversifying

The wealth effect of corporate diversification is a big puzzle. In our country, yet a lot of managers want to diversify their firms anyway. Classical theories suggest that corporate diversification is a leading example of the agency relationship between shareholders and managers.Different from the focusing on the idiosyncrasies of corporate level to research the motivations of firms to diversify, we attempt to shed light on the paradoxes of diversification on the Behavioral Finance, especially on the cognitive bias of overconfidence.After reading lots of literatures and thinking about the questions studied and blank field, the author has put forward several important questions needed to research. Firstly, is there any bias of overconfidence in managers of listed companies? If yes, does the bias influence the selecting of diversification? Can the overconfidence theory address the puzzle of diversification? Secondly, do the managerial other personal characteristics except the overconfidence affect the choice?Based on the aims above, the author employs the empirical research method to analysis the sample date which includes 332 listed companies of Shenzhen Stock Exchange by the SPSS15.0 software, and finds sereval suggestions as follows:(1) The managerial overconfident cognitive bias affects the choice of firms to diversify. The relationship of overconfidence and corporate diversifying is a positive correlation, and the group of managers represented the overconfidence is more likely to diversify their firms than the un-overconfidence.(2) In holding the managerial overconfidence, the firms that their size is larger are more likely to diversify their firms than others, and the firms that their cashflow is higher are more likely to diversify their firms than others. However, the relationship of corporate performance and diversificying is not significant.(3) CEOs other personal characteristics, especially the educational background and employment history, affect the choice of corporate diversified strategy significantly. Our results present that CEOs with a general management background have a better understanding of corporate diversifying than their peers, such as with the financial or technical career. Besides, we shows that the coefficient on the interaction of economic or management education of CEOs with diversification is positive, one the other hand, technical or science CEOs are more likely unwilling to diversify their corporate.