The State-owned Listing Corporation’s Executive Overconfidence, Expanding Investment And Corporate Performance

Traditional economics theory assumes that everyone is rational "economic man", but with the behavioral finance theory is gradually being accepted, which not only provides a new perspective for the study of the economic behavior of human, but also provides a new theoretical foundation for the study of executives irrational behavior. The psychological characteristics of overconfidence is an important factor in many irrational behavior of executives. Overconfidence is defined as:"A belief of the accuracy of his knowledge is higher than the degree of fact." Psychological characteristics of executive’s overconfidence is mainly manifested in the following four aspects:(1) Owe their success to their own ability and skill.(2) Investment decision-making executives are more likely to think it has stronger control capacity, so they may underestimate the possibility of project failure.(3) Executives are more likely to overestimate the level of their knowledge and ability.(4) Executives are more likely to overestimate the event to the favourable development possibilities.Cooper etal(1988) found that the degree of ceos’overconfidence are higher than average person. The error in company management information judgment will produced by the executives are incline to overestimate the level of their knowledge and the corporate profit. Managerial Overconfidence will affect the operating results of enterprise, the research about managerial overconfidence effect on corporate performance has become an important problem that scholars pay attention increasingly. According to the operation mechanism of "corporate governance—management behavior—financial consequences", company performance is just a reflection of the company property consequences, but not representative of executives management behavior. The corporate governance as a kind of organization structure, itself has no direct role in the financial consequences, but through the management behavior indirectly influence on the financial consequences. Therefore, the managerial overconfidence effect on company performance can be analyzed more comprehensive from the point of view of enterprise management behavior and psychological characteristics of Chinese listing corporation executives operating company.In the management of enterprise, investment activity as a kind of important management behaviors are common in Chinese listing corporation, it will have a direct impact on the performance of the company. This is mainly because:(1) The investment activities are done in order to maintain or expand the scale of production, (2) The investment activity is looking for investment opportunities for idle funds or to develop business activities, the implementation of these activities are expected to assets, improve enterprise performance level. Therefore, this paper tries to analyse the managerial overconfidence effect on corporate performance from the perspective of investment activities.This paper takes2007-2010years of state-owned stock listing Corporation in China as the sample data, using empirical combination model test, the conclusions are drawn as followings:There is a significant negative correlation between the managerial overconfidence and the investment activities; The Investment activities is negatively correlatedand with the corporate performance; The managerial overconfidence and the corporate performance is uncorrelated, but rather the managerial overconfidence and the cross-terms of investment activities are positively correlated with corporate performance, which shows that managerial overconfidence on corporate performance has no direct effects, however it exerts influence through the investment activities. The underinvestment problem of the state-owned listing corporation in the post financial crisis era was maked up by the executives’ overconfidence. This shows that the state-owned listing corporation which are managerial overconfidence, its investment activities can improve the performance of the company in the post-crisis era.