The Empirical Study On The Relationship Between Managerial Overconfidence And Overinvestment

Investment as an essential part of enterprise management, it’s importance is self-evident. Therefore, the investment decision of enterprises in general by the most senior managers of enterprises to make and implement. These managers usually have higher management skills and professional level. Theoretically, the decision should be effective, even the best, but in the reality of the enterprise business activities, filled with a large number of non efficiency of investment behavior. For this phenomenon, the traditional finance scholars under the assumption that the manager is "rational economic man" conditions, discussed it from the principal-agent theory, asymmetric information theory and corporate governance theory. They pointed out that when the management is not consistent with the interests of shareholders, the management always with the maximization of individual interests as the goal for investment, and does not consider the interests of the shareholders, causing some managerial benefit but non profitable projects be invested, resulting in losses to shareholders. But in real life there is no complete "rational economic man", the traditional finance theory have some defects, can not explain the "herding" phenomenon in reality life, thus as the times require, behavioral finance theory emerge. Behavioral finance theory to get rid of "rational economic man" hypothesis, based on the traditional financial theory, the psychological factors of managers is introduced to study the influence of it in change management in investment decision making. Found that managers are often due to the own overconfidence and overestimate the benefits of the project and their abilities, to underestimate the costs and risks of the project, and invest the actual investment projects with negative net present value, resulting in excessive investment phenomenon.In this paper, from the perspective of behavioral finance theory, combing the predecessors’study on the managerial overconfidence, excessive investment and the relationship between literature. Select the deviation of earnings forecast to measure the managerial overconfidence, carries on the statistical analysis through the establishment of regression model, inspect the relationship between the listing Corporation managers overconfidence and excessive investment, and the effects of the size of enterprise cash flow on the over investment degree. On this basis, this paper consider the corporate governance has certain impact on management decisions, and specially selected listing Corporation in the Pearl River Delta as the research object, compare the managerial overconfidence and excessive investment to other areas of the country, and draw the corresponding conclusion.In this paper, through empirical analysis, the writer find that the positive correlation between enterprises managers overconfidence and the over investment degree; when the manager is overconfident, adequate cash flow will make the over investment of enterprises to further deepen. Through the comparative study, found that the higher level of corporate governance can reduce the degree of excessive investment, which fills the blank of behavioral finance theory to a certain extent.