Managerial Overconfidence And Corporate Investment-Cash Flow Sensitivity

Corporate finance research has shown that there exists a significant relationship between corporate investment and internal cash flow,once the internal cash flow is abundant,companies often invest excessively,and once the internal cash flow is insufficient,companies often invest insufficiently,which reduces the efficiency of corporate investment.The reason is that academe generally from the perspective of rational people,puts forward the financing constraints hypothesis and free cash flow hypothesis to explain.But,a lot of psychological research shows that managers often show the cognitive deviation of overconfidence.This kind of cognitive biases may affect the investment decisions of managers, which affects the investment cash flow sensitivity of the corporate.This paper,setting aside the hypothesis of rational man, from the perspective of managerial overconfidence,researches managerial overconfidence influence on enterprises investment cash flow sensitivity,based on the data of Chinese listed companies between2002and2013.The study finds that managerial overconfidence has significantly positive influence on enterprises investment cash flow sensitivity; Facing higher financing constraints,managerial overconfidence will affect enterprises investment cash flow sensitivity more significantly;Facing more serious agency problem,managerial overconfidence will affect enterprises investment cash flow sensitivity more significantly;Under different ownership, managerial overconfidence will affect enterprises investment cash flow sensitivity of different levels, the influence of state-owned enterprise managerial overconfidence on enterprises investment cash flow sensitivity is more significant,the influence of agency problem is a major cause of the difference.This study puts forward new suggestions to reduce the investment cash flow sensitivity of listed companies:Reducing investment cash flow sensitivity cannot ignore managers overconfidence psychological impact;Reducing the financing constraints and improving corporate governance will ease the managers overconfidence influence on corporate investment cash flow sensitivity.