Executives' Overconfidence,Internal Control And Corporate Performance

The study of psychology and behavioral finance has shown that people are affected by the emotional and psychological effects of the current period in making decisions.Executives are the main executors and decision-makers of the enterprise.Their personal characteristics will affect the decisions wich they made and change the performance and value of the enterprise.These years,researches on executives' irrational behavior have been more and more extensive.Overconfidence as one of these behaviors has been widely concerned by scholars at home and abroad.Business executives in business activity showed a positive and optimistic,beyond the state general confidence level is called overconfidence,research of Managerial Overconfidence and corporate performance is divided into two categories:Managerial Overconfidence will improve the performance of the enterprise;executive overconfidence will reduce the performance of enterprises,these two kinds of research results according to the relationship between the two.At present,there are few domestic scholars on the positive correlation between the two,and there are few literature to study the continuous impact of overconfidence on the performance of the enterprise.It is well known that internal control is an effective governance mechanism of an enterprise,and internal control will constrain the irrational behavior caused by overconfidence of the executive.So how does internal control affect the relationship between executive overconfidence and corporate performance?In this paper,using the dates from 2012 to 2016 A-share listed companies in shanghai and Shenzhen as the research sample,This paper uses executive relative compensation method and executive investment performance measurement to measure overconfidence of executives,internal quality control using dipop index and using enterprise's earnings per share to measure the enterprise performance.The main draw the following conclusions:first,managerial overconfidence and corporate performance is positive,overconfident executives with higher risk to bear ability and innovative R&D capability than ordinary managers,They can reduce the enterprise to avoid the risk of loss,improve the enterprise's innovation performance,to achieve the strategic goal,and then promote the business enterprise performance.Second,the role of executive overconfidence in corporate performance is sustained.The innovation projects and investment returns of enterprises often cannot be reflected in the current year.The development of projects is cyclical,so this benefit can be reflected in the performance of the past few years.Third,positive correlation between the effective internal control will weaken the managerial overconfidence and corporate performance,effective internal control in order to ensure the enterprise internal information is reliable,tend to develop more stringent regulations and approval system,supervise the role of internal control management often makes the execution is constrained,therefore,the control of overconfidence there is no good quality of enterprise executives in the inside,there is an alternative relationship of internal control and overconfidence on the corporate performance.Finally,according to those above conclusions,the paper proposes the following suggestions from different point of views:first,from the basic level to strengthen the management of their own psychological cognition,corporate executives must be aware of their psychological and emotional state will affect the long-term development of enterprises.Second,the establishment of the effective executive evaluation system is not only looking at the performance of the enterprise,and more attention should be paid to the psychological dynamics of the executives.Third,improve the incentive mechanism of the enterprise.Fourth,we should form an effective internal control mechanism,to simplify the tedious steps,optimize the decision-making process and coordinate the relationship between shareholders and managers,so that we can continuously optimize the enterprises themselves and enhance the value of enterprises in the market.