Managerial Overconfidence, Corporate Over-investment And Excessive Production Capacity

This paper summarizes the research about managerial overconfidence, corporate overinvestment and excessive production capacity home and abroad. Using Chinese listed company data, this paper measures managerial overconfidence in three ways: CEO(CFO)personal characteristics, managerial relative payment and optimistic forecast about the future earnings. This paper uses Richardson(2006) method to calculate the over-investment level and industry capacity utilization data is from He Lei(2015).Firstly, by analyzing the relationship between managerial overconfidence & corporate overinvestment, and corporate over-investment & excessive production capacity, this paper finds that both of them are significantly positive-correlated. Secondly, by conducting an intermediary effects model, this paper finds another significantly positive-correlation between managerial overconfidence & excessive production capacity and this correlation is decreased when overinvestment added into the model. In this way, this paper finds the mediating role of over-investment in the correlation between managerial overconfidence & excessive production capacity. What’s more, by distinguishing the reason of managerial overconfidence, this paper finds the industrial policy is the way how managerial overconfidence affect excessive production capacity. Then this paper builds a model of macro to micro to macro. In order to verify the robustness of the results, this paper uses Simultaneous Equation Models and Fama-French(1973) Two-Step Estimate method. Finally, this paper comes to a conclusion.