Research On The Relation Between Managerial Overconfidence And Enterprise Innovation Investment

Chief executive of Apple Corp Jobs Steve was named by one of thegreatest innovators in the past75years on the business week in2004. His sense ofinnovation brings great success to the Apple Corp and his innovation consciousness areknown as his overconfidence. As the research focus of behavioral finance,overconfidence of humans is the most stable psychological characteristics. Becauserational people traditional assumption is unable to explain many phenomena, more andmore scholars pay attention to the behavior finance. At the same time, in thedomestic, China’s12th Five year plan emphasizes to improve the capability ofindependent innovation of the state and enterprises.The hypothesis of rational people in the principal-agent theory does not be usedin this article. It explores impact of managerial overconfidence on technologyinnovation investment from the perspective of behavioral finance. First, some studieshave shown that overconfident managers are more interesting in the challengingprojects. So we wonder whether overconfidence managers are more interesting inhigh-risk projects. The technological innovation investment is projects with a largeupfront investment and its revenue cycle is large. Compared with other projects,innovation investment is a high risk one. If overconfident managers prefer the projectswith high risk, they will help the enterprise innovation. With these two problems above,we propose two hypotheses of this article. The first one is that overconfident managersprefer high-risk projects. The second one is that the relationship between investment intechnological innovation and managerial overconfidence is positive. Overconfidentmanagers all want to bring higher earnings for enterprise. So this paper made a furthertest to show that whether investment on innovation will enhance corporate value.The core innovation of this paper is the relationship between managerialoverconfidence and corporate investment in technological innovation. Chose to studythe relationship between them is because it has a better theoretical and practicalsignificance. In the study of theory, it can provide a theoretical reference for enterpriseinnovative research. In practice, spirit of innovation is the soul of enterprise. Onlycontinuous innovation the enterprises can walk in the forefront of the times. If theresults can strengthen the innovation capacity of enterprises, they can promote thedevelopment of national and enterprise. In addition, the assumption of rationalmanagers is inconsistent with China’s national conditions. Studying about the irrationalpsychological of managers can bring more practical significance.