The Study On The Relationship Between Executives’ Overconfidence And Violation Of Corporate Performance

The executives as the operators and decision-makers have significant influence on corporate management.Upper echelon theory thinks that executives’ personal features can influence company’s performance and value by influencing its’ strategic choices and decisions.So executives’psychological feature as the main aspect of personal features has significant impact on company’s development.Executives’overconfidence as the one of the typical psychological features especially has strong influence on company’s performance and attracts more and more scholars’ attention,and it can influence company’s performance and value by influencing its’ behaviors and decisions.However,previous researches mainly focus on the level of performance and neglect performance variability.It mainly shows the stability of management and it can measure the level of executives’ management.So researching the question how executive overconfidence influences violation of corporate performance has great sense.The thesis mainly studies the influence of executive overconfidence on performance variability,including transverse variability and the longitudinal variability of company performance.When the executive are overconfident,they always are inclined to overestimate the earnings and payback time and underestimate the possibility of failure and risk,and then they often make irrational decisions,such as the increasing of the times of merger and acquisition and the decisions of short-term borrowing and non-efficient investments.So it may increases the uncertainty and risks of management and development,and then makes the performance fluctuate.Using the balanced panel data from 2010 to 2014 A-share listed companies in Shanghai and Shenzhen as the sample,the thesis uses principal component analysis to measure executive overconfidence,and respectively studies its’ influence on transverse variability and the longitudinal variability of company performance on the condition of controlling some variables.The study results show that executive overconfidence has positive correlation with the variability of corporate performance,that is to say,when the executive are overconfident,it will increases the variability of the corporate performance and risks,and then has an adverse effect on corporate development.What’s more,comparing with the non-state-owned listed companies,the state-owned listed companies even more have remarkably strengthen the positive correlation between executive overconfidence and variability of corporate performance.Comparing with the equity relatively concentrated listed companies,the equity relatively decentralized listed companies even more have remarkably strengthen the positive correlation between executive overconfidence and the variability of company performance.The conclusion provides the theoretical basis and references for the long-term and stable development of the listed companies.At last,according to the aforementioned results,the thesis comes up with some suggestions:firstly,enhancing executives psychological cognition on overconfidence to reduce its’ adverse effect from the source as far as possible;and secondly,perfecting the managers’ employment,evaluation,and incentive systems;and thirdly,optimizing the decision process,regulation and appropriate concentration of equity to reduce the extreme condition;and finally,strengthening executives’ market awareness of the state-owned listed companies and speeding up market process to achieve the long-term and stable development.