A Study Between The Overconfidence Of Managers And Corporate Financing Decisions

In the traditional economic model, the behavior of people are usually assumed tobe rational. However, a lot of psychology experiment research found that people tendto deviate from the rational hypothesis, that is too much self-confidence, herdbehavior and other psychological deviation. Because the study of the theorybeforetime are in the base of the traditional rational assumptions and neglect thebehavioral factors, there are many phenomenon can’t reasonable explain. In this case,a new field of study, behavioral finance has been produced.Behavioral financeinosculate psychology and financial theory in a good way, and investigate morecomprehensive analysis of influencing factors in the financial behavior. Along withthe development of behavioral finance, the research perspective of the managers’overconfidence become the scholars’ research hotspot, and under China’s specialbackground, the characteristics of managers’ overconfidence are more obvious.However, the study of many scholars between the relationship of managers’overconfidence and investment are abundant, the financing behavior are relativelyscarce. Therefore, this article will made some attempts in this regard. In addition,since the1950s, scholars did a lot further research and explorations from differentangles on financial decision-making, it is concluded that the capital structure theory,dividend policy theory, agency theory and other related research results whichprovide the basis for scientific and reasonable financial decision. As one of the theoryof many classical theories of finance, financing pecking order theory also gradually joined the research perspective of financial behavior. But the conclusions are notuniform. The classical financing pecking order theory is from the perspective ofinformation asymmetry. It believes that managers can find out more internalinformation of the company and have good control ability about company’s ownresources, so they would choose internal financing first. The managers consider that itwill transfer the bad signal to the outside world if the company use equity financing.Then in order to protect the interests of the shareholders, the managers will choosedebt financing in priority. Managers of different financing decisions may havedifferent effects upon the development of enterprise, and whether the managers ofoverconfidence will choose different financing order due to their deviation of thepsychological factors? In this kind of situation, this paper attempts to explore whatkind of financing order will prefer of the overconfidence managers in China. And inthe base of this, it will further discuss the consequences upon the financing order.Thatis to say, the enterprises tend to use more debt financing in the financing decisions,which lead to the not optimal capital structure. So managers may not issue the cashdividend in order to hold more internal funds. Because of the dividend fromshareholders constitute a big part of the internal capital of enterprise, and only themanagers have the decisions of whether pay the dividend or not. Managers ofoverconfidence are likely to meet the needs of their own money without consideringthe short-term business profits of the shareholders. They would think that thecompany can have a better development prospects, and then they make use of thecompany’s dividend for other investment projects to get a bigger profit.In view of this, this article focused on the following research and analysis:1. According to the manager about overconfidence on the research of comb andanalyzed by comparing the relevant managers of overconfidence measure. On thebasis of the choice of change as managers of holding measurement method. And themanagers of overconfidence of some influential factors were analyzed and discussed. 2. About management for the financing of overconfidence impact of decisions,mainly for the study on the impact of financing order. This paper using for referencethe financing of the theory of optimal sequence related conclusions and model.Discusses on the actual situation of China’s listed companies and make use ofempirical analysis on the inspection. This paper studies found that being confidentmanagers in the capital of financing strategy can follow the optimal sequence theory,in which managers in the external financing preference debt financing, and externalfinancing. When the managers make choice. Internal capital could be bettercontrolled and low cost. So managers prefer to choice internal financing.3. In view of the above research. Base on the managers who are overconfidentwill prefer to choice internal financing. Put forward the hypothesis that the managersoverconfident is in order to hold more internal capital and issue less dividend.Whether a manager who has overconfident psychological will influence his decisionabout issuing dividends. This paper will make a relevant empirical research.