Executive Overconfidence And Corporate R&D: The Effect Of Institutional Ownership

Nowdays,China is faced with severe economic challenges,and Chinese government puts forward that we need to strengthen technological innovation to promote China's economic transformation and upgrading.As for how to drive companies to innovate,the answer is increasing R&D.When it comes to increase R&D,it is much easier said than done.To achieve the goal of increasing R&D,not only executives' action but also other stakeholders' corporation and understanding are required.Curretnly,a few companies have realised that the overconfident excutives semm to be more willing to innovate.However,some people argue that overconfident executives are reluctant to external finance,which may lead to underinvestment of R&D.It is unclear whether overconfident executives can increase R&D as their employees' wish.On the other hand,with the capital market maturing,more and more companies have instituional ownership,and they hope the instituional investors can improve the corporate governance.But different institues adopt different investment policies.So how to lead the institutional investors to corporate with executives to achieve long-term goals,or more exactly,how to stir up the innovation passion of overconfident executives,is an important issue.Based on the background,this thesis will start from corporate behaviroal finance,and executive overconfidence will be our focus.Combining the theory of coporate goverance,we will study how institional ownership affects the relationship between executive overconfidence and R&D.First,this thesis will figure out whether executive overconfidence helps improve R&D as people think.Second,as for institutional ownership,we will select 4 important features for this study,which are shareholding deepth,breadth,stability and indepence.This study aims at finding out as the feature varies,what will happen to the moderating effects of institutional ownership.To carry out the empirical reseach,we take the Chiese listed companies from 2012 to 2016 as samples,and we process the data with OLS.To make sure that the results are stable,we even adopt 3 different robust tests.The robust tests consist of changing the key variable,extending the peiord and changing the processing method.according to the tests,all our results are robust,and our findings are listed as follows:(1)compared with unoverconfident executives,the overfonfident executives are more likely to increase R&D;(2)The deeper the institutional ownership is,the stronger relationship between executives overconfidence and R&D is(3)The breader institutional ownership is,the weaker the relationship between executives overconfidence and R&D is.But it is interesting that even when the institutional ownership is bread,executives overconfidence still improve R&D significantly.It is just the extence is comparatively weaker.(4)The more stable institutional ownership is,the stronger the relationship between executives overconfidence and R&D is.It is noticable that when the instituional ownership volitility is high,executive overconfidence may decrease R&D.(5)The institutional ownership independence doesn't play a moderating role as we assume.That means,no matter how indepent or unindepent the institution is,its ownership doesn't affect the promoting effect of exective overconfidence on R&D.