Managerial Overconfidence,Internal Control And Inefficient Investment

As the main driver of company's development,investment is directly related to the daily business processes,and the company's investment efficiency decide that if the enterprise stable,healthy and rapid development.Currently most companies are in inefficient investment.Internal control is throughout the company activities and able to supervise and restrict the production and business activities.Meanwhile,the behavior of corporate finance theory believes,in reality,most of the managers exist irrational deviant behavior,and these deviant behaviors largely result from their own experience and corporate environments.But as the oversight mechanisms of enterprises,the internal control can revise managers own bias and affect the investment efficiency further.In recent years,scholars do not study the managerial overconfidence,internal control and inefficient investment under the common framework.Therefore,this article attempts to investigate how the internal control affects the managers overconfidence,and how the managerial overconfidence and internal control together to affect the inefficient investment.In this paper,normative and empirical research methods are adopted,firstly,it introduces the research background,the research significance,the main content and the main innovations;secondly,laying the foundation for the empricical test below,it concerns about the theory managerial overconfidence,the theory of internal control,the theory of inefficient investment and the related articles;thirdly,the effective mechanism of managerial overconfidence,internal control and inefficient investment is introduced,and elaborates proposed hypothesis of this paper,this paper selects the effectiveness metrics of managerial overconfidence,internal control and inefficient investment,and builds regression models;fourthly,based on the listed companies in A-Share market of Shanghai and Shenzhen Stock Exchange(observation period between 2007-2013),empirical research inspects managerial overconfidence,internal control effect on inefficient investment.The main contribution of this paper has the following three aspects:1.High quality of internal control can restrain inefficient investment.Good internal control can reduce overinvestment or underinvestment.2.Good internal control can alleviate managers overconfidence bias behavior,reduce the degree of managerial overconfidence.3.When the presence of overconfidence managers,high quality of internal control can weaken the action which managerial overconfidence bias effect on the behavior of overinvestment and then restrain the overinvestment in corporate.However,the presence of overconfidence when the company is in underinvestment,high quality of internal control can not be weaken the action which managerial overconfidence bias effect on the behavior of underinvestment and then restrain the underinvestment in corporate.Anyway,internal control can decline the inefficient investment directly,and weaken the overinvestment indirectly through the overconfidence.