On Over-investment In Corporation By Over-confidence Of Manager

Investment activity,one of the key factors that affected the performance of the corporations,was very important to promote the value of corporations.But in reality,many corporations have had different levels of over-investment.Based on this,there was a lot of researches done by scholars at home and abroad,but mostly based on ‘rational economy people’,trying to explain the corporations’ over-investment behavior through traditional financial theory,and ignored the influence of management’s psychological factors on investment decisions.Roll introduced over-confidence into the study of corporate finance for the first time,which provided a new perspective for us to explain the over-investment behavior of corporations.As managers of the corporations,they played an irreplaceable role in modern corporate governance.They improved the efficiency of resource allocation through investment and financing activities and participated in the corporations’ business decision-making by financial means.So,from the over-confidence point of view,the influence of over-confidence in the management of the corporations’ investment decisions,it can give us a new perspective on the excesses of the corporations.At the same time,because of the complexity of the decision-making process and the diversity of the factors,the results of the decision behavior of the corporations were not always to maximize the value of the corporations,and they created the so-called ‘over-investment’ problem,which were damaging to the value of the corporations,and they were impeding the development of the corporations.In recent years,scholars at home and abroad have been studying the energy industry in solar,nuclear energy and wind power,and found that the new energy industry had an over-investment,overcapacity and so on.Wuxi Suntech was the first Chinese corporation to go public in the United States,and also the largest manufacturer of photovoltaic products in the world.Since the operation of the corporation,Wuxi Suntech had expanded nearly 20 times faster,especially in terms of its capacity investment.But due to the decline in the price of raw materials,the structural shrinkage of the market,and the irrational expansion of the enterprise,Wuxi Suntech had led to the deterioration of financial liquidity,because of its reliance on debt financing in a series of crises.In 2013,Suntech finally went bankrupt and restructured,which caused a huge stir in China’s capital market.Many scholars began to study the deep reasons for the bankruptcy and reorganization of China’s largest photovoltaic corporation in just a few years.Based on the analysis of a series of investment expansion behaviors and financial data of Suntech from 2007 to 2011,this paper concluded that Wuxi Suntech had serious overinvestment behaviors.Firstly,based on the prospect theory,behavioral finance theory and other theories,under the premise of uncertain market environment and imperfect corporate governance mechanism,combined with the case of Wuxi Suntech’s over-investment,this paper makes a detailed analysis of the influence mechanism of managers’ over-confidence on over-investment.Secondly,based on the existing specific situation and financial data of Suntech,the paper analyzes the consequences of Suntech’s over-investment from three aspects: corporate performance,corporate risk and performance of Suntech’s stock market.Finally,through analysis,it can be concluded that corporate managers can avoid cognitive traps as much as possible,effectively evaluate investment decisions from the perspectives of psychology,behavioral economics and behavioral finance on the basis of self-cognition,and reduce over-investment behaviors caused by over-confidence;At the same time,through the analysis of the causes of over-confidence,it is helpful for the corporations to use reasonable internal governance structure to reduce the impact of managers’ over-confidence psychological deviation on their investment decision-making behavior and improve the efficiency of the corporations’ investment decision-making.