An Empirical Study On The Influence Of Manager’ Overconfidence On Cash Dividend Policy For Listed Companies

Dividend policy is an important part of corporate finance. An reasonabledividend policy can stimulate the enthusiasm of investors and maximize the value ofcompany. The Chinese capital market is still not perfect and the dividend distributionbehavior of listed companies are unreasonable. The traditional theory on dividenddistribution can not reasonably explain the anomalies that exist in the dividenddistribution behavior. It is the future research directions that we should try to explainthe dividend distribution from a new perspective. Psychology study found that peoplehave common cognitive biases. These deviations can significantly affect thecompany’s financial activities. These cognitive bias have been considered in theresearch of dividend policy. Academic scholars begin to explain the behavior ofdividend distribution from the perspective of behavioral finance. Overconfidence is"the most robust findings in psychology," managers of Chinese listed companiesprone to overconfidence in the psychological characteristics when they are makingdecisions, which lead managers to deviate from rational decision-making, and furtherwill impact on company’s normal operations.This paper reviews the domestic and foreign research literature on howoverconfidence effect dividends and find that some empirical test result is a positivecorrelation, while some result is a negative correlation, the conclusions areinconsistent. Firstly, analysis how managerial overconfidence effect on dividendsbased on the theories. Next, an empirical research is carried on with research sampleslisted between2010and2012in Shanghai and Shenzhen Stock Exchange. To measuremanagerial overconfidence through the way of earnings forecasts bias, select fourindicators under different bias magnitude, choose earnings per share, operating cashflow per share, asset-liability ratio, company size, Tobin-Q and industry, annualvariable as the control variables, then carry on the empirical test both on the cashdividend will and cash dividend distribution rate. At last, use the relative ratio ofexecutive compensation and whether executives holding changes as the indicators tomeasure managerial overconfidence, to test the the robustness of the empirical studies.Through the empirical test, get conclusions: Managerial overconfidencecompanies are more reluctant to distribute cash dividends; when they are willing to distribute, managerial overconfidence companies are likely to distribute more or lesscash dividends is uncertain. Which regulate the cash dividends distribution behaviorof listed companies, improve the quality of listed companies, and thus ensure thehealthy and stable development of China’s stock market has a certain theoretical andpractical significance.