Managerial Overconfidence,Inefficient Investment And Cost Stickiness

Generally,according to the theory of cost habit,we believe that the relationship between business volume and cost is linear,and the increase and decrease of the same unit of business will lead to the same degree of change in cost.However,later studies found that in the actual production and operation of enterprises,it is not like this,the impact of the increase and decline of business volume on costs is asymmetric.The cost is affected not only by the volume of business,but also by corporate governance,managers’ psychology,external environment and so on.the increased cost when the business volume increases is greater than the cost that decreases when the business volume decreases,and the difference of this cost change.It’s called cost stickiness.With the development of behavioral finance,the hypothesis of rational people,as the premise of many theories,is more and more unsuitable for the complex capital market.Studies have shown that fully rational economic man does not exist,people often show the tendency to overconfidence,from their own interests to take action.Especially as managers,because of the influence of professional background,position,voice and control,their evaluation of themselves is often higher than the actual,overconfidence is also more obvious.Incomplete rational behavior will certainly lead to the deviation of decision-making and the non-optimal allocation of resources.Manager overconfidence,as an irrational psychology,determines the irrational decision-making behavior of managers,and then affects the daily production and management and cost management of enterprises,resulting in cost stickiness.This paper begins with managers’ behavior,reviews the research results in related fields,on the basis of predecessors,draws lessons from Anderson(2003)classical logarithmic viscosity model,and uses the data of A-share listed companies in China from 2013 to 2017.The manager characteristic measure method is used to measure the overconfidence of managers,and the residual model is used to measure the inefficient investment variables.the cost stickiness caused by overconfidence of managers and the role of inefficient investment in the transmission process are studied.The results show that managers’ overconfidence will lead to cost stickiness,and inefficient investment plays a part of intermediary variables in managers’ overconfidence and cost stickiness.One part of managers’ overconfidence directly leads to cost stickiness,the other part acts on cost stickiness through inefficient investment.This study enriches and expands the content of cost stickiness research and behavioral finance,opens up a new direction for the study of the causes of cost stickiness,and also helps to remind managers and business owners to change their minds.From the source and mechanism of action to control cost stickiness,strengthen cost management,improve the competitiveness and value of enterprises.