Research On The Impact Of Manager Overconfidence On Capital Structure Decision-making Based On Political Connection

Capital structure decision-making plays an important role in the development of enterprises.Over a long period of time,the problem of excessive leverage has been plaguing all walks of life in our country.Therefore,in recent years,deleveraging and risk prevention have become the center of the government’s economic work.But from the results,the governance effect is not obvious,so in order to use more effective measures to improve this phenomenon,it is necessary to study the influencing factors and mechanism of capital structure decision-making.Based on the data of A-share listed companies in Shanghai and Shenzhen stock markets from 2009 to 2016,this paper takes the asset-liability ratio,short-term debt ratio,Speed of capital structure adjustment and Capital structure adjustment efficiency as the alternative indicators for the capital structure decision of enterprises.The manager’s profit forecast deviation measures the manager’s overconfidence psychology,whether the chairman and the general manager have the political connection to measure the enterprise’s political connection,from the static and the dynamic angle.This paper probes into the influence of manager overconfidence on capital structure decision,and introduces political association,an informal market mechanism,to deeply analyze the relationship between political association to manager overconfidence and enterprise capital structure decision.This paper finds that overconfident managers tend to be radical liabilities,especially short-term liabilities,so as to accelerate the dynamic adjustment speed of the capital structure of the enterprise,but at the same time,the structural adjustment efficiency of the capital capital is deteriorated.After introducing political linkages,this paper finds that political linkages can promote the positive correlation between overconfidence of managers and debt level,debt maturity structure and deviation degree of capital structure,and the positive correlation with the speed of the structural adjustment of the capital.At the same time,it is found that the above-mentioned relationship is more significant in private enterprises than in state-owned enterprises.In addition,after grouping the samples according to the level of marketization,regression analysis shows that in areas with lower level of marketization,political connections will increase the relationship between managers’ overconfidence and corporate debt level,while political connections will promote managers who are overconfident to prefer long-term liabilities,But in areas with high market level,the relationship between overconfidence of managers and dynamic adjustment of capital structure will be more significant.The above conclusions show that,on the one hand,managers’ overconfidence is an important factor affecting capital structure decision-making;on the other hand,political connection has become an important factor affecting capital structure decision-making behavior by increasing managers’ overconfidence.In view of the above research conclusions,this paper puts forward corresponding policy suggestions,which can start from four aspects: reducing managers’ overconfidence bias,improving the internal governance structure,deepening the reform of state-owned enterprises and improving the management concept of private enterprises,to govern the capital structure decision-making behavior of enterprises.