Internal Control, Managerial Overconfidence And Inefficient Investment

Through a series of capital operation in order to realize the goal of maximize enterprise value, investment is one of the main financial activities of the company, therefore it’s vital to the company development. However, at present, the listed company of our country exist the phenomenon of inefficient investment under the influence of factors such as resources and consumer demand, embodied in two aspects of overinvestment and underinvestment, significantly affect the development of the enterprise. In recent years, under the external regulatory requirements, internal control mechanism has gradually become the core of corporate governance, and investment efficiency is a important topic in the field of management, so how to improve the investment efficiency from the angle of the internal control is necessary. At the same time, many scholars break through the bondage of "rational man" research executive overconfidence can lead to inefficient investment. Due to the investment decision is made by the managers in the corporate governance environment, thus combining internal control and executive overconfidence to study can provide a new perspective for improving the investment efficiency.First, based on the internal control, executive overconfidence and inefficient investment definition, combing the domestic and foreign scholar’s related research found that existing literature is the study of internal control and executive overconfidence affect the efficiency of investment alone, and some scholars think the internal control have governance effect on executive overconfidence.Second, we study the internal control and executive overconfidence how to affect the inefficient investment. Based on agency theory, information asymmetry theory and the theory of behavioral finance to infer the relationship of internal control, executive overconfidence and inefficient investment, and put forward the hypothesis. And selected listed companies from 2009 to 2013 from Shanghai and Shenzhen as the research object, then establishment the model to test the mediation effect of executive overconfidence.The study found that:(1) the internal control has stronger inhibitory effect on overinvestment than on underinvestment;(2) executive overconfidence has stronger promoting effect on overinvestment than on underinvestment;(3) the internal control has supervision and corrective action on executive overconfidence;(4) executive overconfidence play mediation model in the relationship of internal control and inefficient investment. Finally, according to the research conclusion of this paper put forward some proposals on how to improve the investment efficiency. We take internal control, executive overconfidence and inefficient investment into consideration not only can help improve internal control system, as well as create a new path to administer inefficient investment.