Executives Overconfidence, Corporate Governance And Corporate Performance

Through Behavioral Science and Cognitive Psychology research, Scholars found that people’s behavior was not entirely rational decision-making in the 20 th century. As a business manager, manager has a high degree of decision-making power in the company’s daily operations, this situation become more serious. Once managers have cognitive bias, it will have a profound impact on business development of the whole enterprise in the future. With the separation of ownership and management in enterprises, executives play an important role and have some companies operating authority.Whether its irrational behavior will affect the company’s performance or not? Scholars draw more attention on overconfidence, because overconfidence is a important manifestation of the irrational behavior. Most domestic and foreign research focused on the relationship between overconfidence and corporate investment or financing.There is less discussion about the relationship between executivs overconfidence and corporate performance. Therefore, this paper intends to explore the influence between executive overconfidence and corporate performance, at the same time we add the factor of corporate governance as the moderator, for example, two-level one, the proportion of independent directors, ownership concentration and the nature of company and other adjustment factors, whether it would have a postive negative influence the relationship between executive overconfidence and coporate performance or not.This paper uses the data of the 2010-2014 the SME board listed companies for empirical analysis, systematically summarizing the relevant literature about experts and scholars at home and abroad.Then it combines with research overconfidence theory, proposes herein hypothesis and choose the relative ratio of the pay of managers as a measure of overconfidence indicators, namely: the top three executive compensation and accounting of all proportion and executive pay is greater than the median identified as overconfidence; on the contrary, the non-executive overconfidence. To ensure the stability and consistency of empirical results, this paper selected to the number of mergers and acquisitions of listed companies as a surrogate measure of overconfidence. Namely: when the acquirer initiated twice in one year or more than twice the company’s mergers and acquisitions behavior, managers is overconfidence, finally we obtain the following conclusions:(1) Executives overconfident have a negative relationship with corporate performance.(2) CEO duality of the company compared to the non-duality of the two companies have a stronger negative impact on corporate performance, it means the jobs of chairman and general manager separated can help to reduce the negative impact and play a certain corrective action.(3)The proportion of independent directors of the Board can not reduce the negative relationship between executive overconfidence and corporate performance. In other words, the independent directors in listed companies of small board don’t completely play its role of supervise, strengthen the management of company risk and weaken the negative relationship between executive overconfidence and corporate performance.(4)The higher degree of ownership concentration can weaken the negative relationship between executives overconfidence and corporate performance.(5)The negative correlation between executives overconfidence and corporate performance in the state-owned enterprises is stronger.Based on the above findings, this paper puts forward several policy recommendations:(1)The post of chairman and general manager can not be united. The Small board of listed companies should be reform the internal management system, clear the division of functions.(2)The employment system of independent directors system should be established and improved. They should improve the incentive mechanism of independent directors to mobilize independent directors enthusiasm and ensure that independent directors can participate in normal business operations, decision-making, and increase their participation,(3) Establish internal incentive mechanism science. When the company employ managers, various factors should be considered, choosing strategy suitable professional managers as executives the company’s future development. Meanwhile, executives training should provide the course that executives overconfidence company making mistakes to advoid overconfidence.(4)Establish a scientific and rational decision-making system. When managers make decisions, scientific and rational decision-making system is conducive to improve efficient management reduce arbitrary personal decision and weaken executive overconfidence negative impact on corporate performance.