Empirical Study On The Board Governance, Managerial Overconfidence And Corporate Performance

Since Markowitz laid the theory of modern finance and investment, Modigliani and Miller made the MM theory in 1950s, new original financial theory had emerged:such as balance theory (Krause,1973; Scott 1976;Myers, 1984), asymmetric information theory (Ross,1977; Myers and Majluf,1984), agency cost theory (Jensen and Meckling,,1976), corporate governance theory (Berle and Means,1932; Jensen and Mecking,1976; Hart and Moore,1998) and corporate control theory (Aghion and Bolton,1992). These theories follows an important prerequisite--rational man hypothesis, which assumes people are rational decision-making body, in accordance with the principle of maximum utility to take action and be able to make the right of known information processing, and thus on the market to make rational judgments.However, more and more empirical evidence found that people on the strict rationality assumptions in reality was a lot of questions. As the market continues to appear in the various visions, the past is not its financial theory to make a convincing enough explanation. In view of this, some Western psychologists and economists to the theory and cognitive psychology research paradigm into the field of financial research, the traditional financial theory on the basic assumption of rational managers made many improvements. It was born of behavioral finance theory, behavioral finance theory of market efficiency in the "rational economic man" has posed a challenge to the assumption that the introduction of managers in which non-rational. Appears in the behavioral finance theory, and sometimes faith of investors are not necessarily incorrect, sometimes investor sentiment may be true, but investors do not make the right choice.On the other hand, a large number of studies have shown that the Board of Management will affect the company’s overall operating results. These studies rarely consider the psychological characteristics of the management. Theoretical and empirical analysis indicate that overconfidence may be made over the management of investment and financing and other non-rational decision-making that affect the performance of the company, then as board governance and whether it helps prevent over-confidence, general manager of the non-rational behavior, and further to the company help to improve performance? The total is well known, investment and financing activities have a significant impact on company performance, and acts as the investment and financing decision-makers, senior managers will conduct have a significant effect on company performance. As educational levels and received compensation managers is much higher than ordinary employees, and more extensive work experience, and had enormous hands of decision-making power, which makes them more likely to exhibit behavioral characteristics of overconfidence, and therefore the study How to restrict administrators over corporate governance is very necessary self-confidence.The article focuses on domestic and international studies have been carried out to collate and summarize the results, followed by reference to past literature and managers of listed companies in China based on the characteristics of over-confidence, build self-confidence of managers to over-behavioral characteristics of the measure, the last of China’s listed as indicators Companies regression test data, contained in a rational framework to explore the board governance structure constraints on the role of manager overconfidence. The study will Managerial Overconfidence and Corporate Board Governance Behavior banded together to enrich the domestic over-confident in the management of research results.This thesis describes the background from the study, theoretical analysis of empirical research into the idea of using standardized analysis and empirical research methods combined. Is organized as follows:PartⅠ:Introduction. This study describes the background, significance, main content, framework and research methods.PartⅡ:A Survey. Based on research needs, management over-confidence for the impact on operating results, primarily from the managers of overconfidence on corporate investment decisions and the impact of overconfidence on corporate finance managers to the impact of these two aspects of decision-making were reviewed and summarized. On the board governance, mainly from the post of chairman and general manager of two separate, independent directors, board of directors acts (Board meetings), the Board of Directors established the Remuneration Committee of results of four made the face of the corresponding comb.PartⅢ:Theoretical Analysis. The second part of this section for managers based on overconfidence, Board Governance combing the literature, combined with existing research results, respectively, overconfidence of managers impact on the performance of the company and the Board of Governance on the psychological impact of overconfidence managers made Theoretical analysis, and finally board the four key governance characteristics and reduce the psychological overconfidence managers, constraining the specific role of non-rational behavior to do a more in detail.PartⅣ:Research Design. The third part of this article based in part on the theoretical derivation, the corresponding hypothesis. Then hypotheses, research design, including sample selection, how to measure the relevant variables will result in a regression model.PartⅤ:An Empirical Examination and Analysis. Listed Companies Based on research data, financial software using EXCEL to refine, select the sample for this study, using SPSS software group regression testing, the final results of the regression analysis.PartⅥand Part VII:Research findings and policy recommendations, research limitations and post-research prospects. This section covers the conclusions of the study paper, the relevant policy recommendations, research limitations, and follow-up research in the field of prospects.This final perspective based on behavioral finance theory of over-confidence, increase in stock price growth rate is less than the broader market situation, the general manager of the number of shares held by the company to increase or remain the same as the standard, the use of Listed Companies in China 2007 To 2009 changes in the shareholding characteristics of the situation and general manager of the existence of overconfidence measure around whether the inhibition of the company board governance manager overconfidence negative impact on company performance an empirical test, reached the following results:1, Managerial Overconfidence and Corporate operating results showed a significant negative correlation. Scholars before the managers of listed companies show confidence and corporate profitability over the stable and significant negative correlation, while the manager overconfidence effect on the performance of the company, primarily through the company’s investment and financing decisions to achieve. The results of this study should permit a previous conclusion.2, Increase the proportion of independent directors and management did not reduce overconfidence negative impact on company performance. The empirical results show that the independent director system in China, there are still some defects in the mechanism, the independent directors as the provisions dealing with regulatory authorities take the form of arrangement, did not take good proper oversight functions, this issue should be caused by listed companies And the attention of relevant authorities.3, Separation of chairman and general manager of the two level executives can effectively reduce the excessive self-confidence arising from the negative impact on company performance. Regression analysis, the two jobs in one group, two separate groups in post overconfidence effect on corporate performance was significant separation of the two functional groups overconfidence effect on corporate performance was not significant, the empirical results show that the chairman and the total Grade separation of the two managers, the Board can effectively play their oversight functions, general manager of non-rational decision to reduce production, therefore, help to improve the separation of two jobs, general manager of over-confidence which the company’s performance.4, The number of annual meetings of the board and managers do not exist between the apparent overconfidence of the constraint effect. Regression test, both sets of samples were over-confident of the results showed a significant negative correlation, indicating that the frequency of meetings held and can not decrease the risk of over-confident managers the role of psychology, the Board meeting of executives talking about the supervision of the real Question time is not perhaps the root of the problem lies.5,The establishment of the Remuneration Committee can inhibit the over-expansion of executive pay as a result of psychological overconfidence played a role, but it is not obvious. Test results show that listed companies establish a remuneration committee overconfidence and corporate performance management relationship between the behavior will be slightly stronger and has not established a remuneration committee of listed companies. Overall, however, the two sample groups, the over-confidence on the negative correlation between company performance are more significant, suggesting that the establishment of the Remuneration Committee is not to curb excessive growth of self-confidence managers have significant inhibition effects are relatively weak however.The reason for this result may be that managers may have co-opted by some means the Remuneration Committee in their favor candidates to influence the impact of the Remuneration Committee to the arrangement, leading to the Remuneration Committee can not achieve real independence, thus reducing the Commission Pay for their monitoring; Another self-construction of the Remuneration Committee may also exist various problems, such as meeting time is running out, members of the Committee on how the lack of relevant knowledge to develop the pay and so on. All these will impact on the role of the Remuneration Committee.