The Empirical Research On Managerial Overconfidence And Effect Of Internal Control

As an important part of the behavioral theory about corporate finance, the theory ofmanagerial overconfidence breaks the assumption of "rational" in the traditional research,and pays more attention to the irrational behavior of managers in making decisions. Thetheory absorbs extensively the psychology, sociology, economics, and especially the resultsof scientific research of the behavior of decision-making, and analyzes the behavior ofcorporate decision-making by using the basic principles of psychology and economics. Asa decision-making behavior of managers, the establishment, improvement and effectiveimplementation of internal control will be surely affected by their psychologicalcharacteristics and emotions. And managerial overconfidence may have some impacts onthe effect of internal control.The paper will study the relationship about managerial overconfidence and effect ofthe internal control, and managerial overconfidence is seen as an important factor whichinfluences the effect of the internal control. Firstly, on the basis of a systematic review andassessment about relevant theory and research results, the paper locates the angle ofresearch, systematically elaborates the basic theory of managerial overconfidence andeffect of internal control, designs the way of research, and explores metrics of managerialoverconfidence and effect of internal control. In the paper, the empirical study buildsregression model with the statistics of Shanghai and Shenzhen A-share listed companies ofmanufacturing industry, and makes descriptive statistics, correlation analysis, multiplelinear regression, and Logistic regression by using statistical tools SPSS17.0. Theempirical results show that managerial overconfidence may weaken the internal controleffect, because it has a negative impact on effectiveness of the operation, the reliability offinancial reports and compliance with relevant laws and regulation, which are threeimportant aspects of internal control, though the degree of influence on them is different.There are several innovations in the paper as following:(1) the paper treatsmanagerial overconfidence as an important factor that influences internal control, andspecially studies the relationship between them;(2) the paper selects quantitative researchmethods, and makes new discussion about metrics of managerial overconfidence and internal control;(3) the paper deals with internal control indicators using method of factoranalysis, and tries to make Logistic regression against discrete variables.