Study On CEO Overconfidence,Innovation Investment And Firm Growth

As the basis of western classical economics,the hypothesis of rational economic man supported the wide range of academic research.Then Simon put forward the view of bounded rationality,and professor Daniel Kahneman and professor Vernonl Smith promoted the development of behavioral economics.Since that more and more scholars began to combine finance and psychology for interdisciplinary researches to explore the psychological attribution behind managers' financial behavior in real life.Overconfidence is one of the most widely studied psychological types.Under the modern enterprises' systems,while the routing and standardization of financial decisions are relatively perfect,as CEOs are one of the most important executives,their psychological characteristics still have great influence on the financial behavior of enterprises,such as acquisition,investment and financing.In this paper,we reviewed many related literatures and found that,innovation ability is the key indicator for the future development of enterprises in the fierce market competition,and the overconfident CEO tended to be much more adventurous and more willing to increase the spending on innovation investment to accelerate the growth of enterprises.In this paper,we took the Chinese corporations which listed in A-share market between 2010 and 2011 as samples and designed several models to research the relationship among CEO overconfidence,innovative investment and the growth of corporations.The results showed that,CEO overconfidence improved the level of innovation investment significantly,and innovation investment promoted the growth of corporations.Thus,innovation investment brought by the overconfident CEO also promoted corporations' growth.Then we distinguished the nature of property rights and ownership concentration,and found that this promotion has a significant lag in the non-state-owned corporations and the promotion effect is more outstanding in the corporations with high ownership concentration.This research provides new empirical evidences for study on overconfidence,innovation investment and the growth of corporations,and enriches the theory of behavioral finance and corporate governance.Moreover,it will help investors and other stakeholders in understanding the influence of psychological preferences of CEO and innovation investment on the corporations' future development,and then provide guidance to their decisions.