The Empirical Research On Manager Overconfidence, Corporate Governance And Capital Structure

Over the years, academic researches on capital structure always begin with theassumption of “rational man”，they ignore the psychological bias of managers.Thetheory of manager over-confidence breaks the traditional theory of "rational man"assumption,it is closer to reality cases and can better explains the financial behavior.Therefore, this paper seeks to explore the relationship between manager overconfidenceand capital structure, and explores the relationship between capital structure and manageroverconfidence under the corporate governance variable.On the basis of literature review of related research both domestic and oversea, thispaper makes use of theory of behavioral finance, capital structure and corporategovernance etc., and combines both normative and empirical research methods to make aresearch on how manager overconfidence affects capital structure from the viewpoint ofcorporate governance based on the experimental data from2007to2010of ChineseShanghai and Shenzhen listed companies. Firstly, in the view of behavioral finance, thispaper discusses manager overconfidence, corporate governance and capital structure inorder to indicate generation mechanism and the action mechanism of manageroverconfidence affecting capital structure and the connection of them from the viewpointof corporate governance. Secondly, it extracts a main cost variable by the means ofprincipal component analysis and objective assignment method, this indicator uses toexplore the relationship between capital structure and manager overconfidence, and testthe relationships between manager overconfidence and capital structure under the impactof corporate governance. Lastly, on the basis of theoretical and empirical research, thispaper makes countermeasure research how to restrain the impact of manageroverconfidence on capital structure from the viewpoint of corporate governance.Empirical analysis shows that the degree of manager overconfidence andasset-liability ratio is positively correlated,it is to say that the overconfident managers ismore in favor of debt financing than equity financing; after joining the corporategovernance variables, we find that the degree of overconfidence of the manager is decreasing in the companies that have good corporate governance, that is to say goodcorporate governance level has a correction effect on the degree of overconfidence of themanager.