Relationship Between Management Degree Of Overconfidence And The Agency Cost

The research on corporate investment&financing in the Behavioral Corporate Finance Perspective is an important academia subject. Traditional investment&financing problems is based on the assumption of "rational economic man", and the management qualities are not included in the study framework. In the Behavioral perspective, the manager is supposed to be overconfident when making the financial decisions. They will tend to expand the investment and increase the debt financing. Theoretically, this behavior character should have a certain impact on the debt agency costs which is the product of the investment and financing interactions. But related researches did not tell us the specific relationship and the action mechanism. After the review of the related theory and literature, this article carried out a series of studies for the relationship between the management overconfidence and corporate investment&financing and the debt agency costs. The study not only theoretically enriched and perfected the traditional theory of invest&financing and overconfidence, but also helped us to understand the overconfidence degree, and how to reduce agency costs. There is certain theoretical and practical significance with the article.The article expounded the theory of the investment&financing and overconfidence in first, secondly reviewed the research of the relationship between overconfidence and investment and financing in home and abroad. It was found that although both have a lot, but there is rarely literature for the research of the relationship between the overconfidence and agency cost which is based on debt financing. Therefore, this paper introduced a real option model to analyze the investment and financing interaction. The model including management overconfidence indicators analyzed the investment,financing and the agency cost function for the research hypothesis.Then, the data for the listed manufacturing companies in 2008-2010 is selected for the study sample, including the manager ownership change to measure the management overconfidence, the investment level,the debt level and the agency cost as the dependent variable. The regression results show that management overconfidence have a monotonous role in promoting the level of investment and debt levels, as well as a non-monotonic relationship between the debt agency cost. The study confirmed that the management overconfidence have a governance role for the debt agency cost.