Research On The Impact Of Managerial Overconfidence On Capital Structure

"New York Times" reported that McKinsey's study of the debt of 47 countries have shown that since the outbreak of the financial crisis in 2007, the world's total debt have surged by $57 trillion dollars with many countries deep in the debt crisis. It is also worth noting that during this period China's debt have increased by 20.8 trillion dollars. As one of the world's largest three international rating agency, Fitch believes that the deterioration of China's economic prospects would enable the world's largest debt bubble appears.Debt strategies are one of the most important aspects of capital structure, they deserve more attention. Previous academic researches on capital structure have been based on the hypothesis that the managers are "rational men", ignoring the influence of managers' psychological deviations and behavioral biases. During the 30 years of development, behavioral corporate finance has already broken the traditional "rational man" hypothesis. Combining the research results of psychology and behavioral science behavioral corporate finance explains some problems that the traditional finance cannot. On these bases, this paper attempts to explore the relationship between managerial overconfidence and capital structure, and study the impact of corporate governance on the aforementioned relationships.On the basis of literature review of related research both domestic and oversea, this paper employs the theory of behavioral finance, capital structure and corporate governance to focus on three issues:the relationship between managers overconfidence and debt level, the relationship between managers overconfidence and debt maturity, and whether corporate governance influences the relationship between managers overconfidence and capital structure.This paper uses data of A-Share listed companies listed in Shanghai and Shenzhen stock exchanges during the period 2010-2014 as sample. The empirical results reveal that:(1) Managerial overconfidence is positively correlated with the level of debt of listed companies. The stronger degree of managers overconfidence, the higher level of corporate debt.(2) Managerial overconfidence is positively correlated with debt maturity, overconfident managers prefer short-term debt.(3) Under different scenarios of board governance, ownership structures, controller type, management incentives, board of Supervisors governance and information transparency, managerial overconfidence impacts corporate capital structure differently. This hints that good corporate governance environment may correct managers'irrational behavior.