The Impact Of CEO Overconfidence On The Risk-taking Of Commercial Banks In China

Traditional research generally uses the hypothesis of "rational broker" to explain the role of managers in the management of commercial banks.However,behavioral finance research shows that managers are disturbed by a series of irrational factors when they are making business decisions.Especially managers are more likely to be overconfidence during the decision.Therefore,it is necessary to research the impact of CEO overconfidence on the bank risk-taking behavior.This paper studies the impact of CEO Overconfidence on bank risk-taking using 30 commercial banks from 2006 to 2017.Firstly,based on the analysis of prospect theory,self-attribution bias theory and control illusion theory,this paper summarizes the influence mechanism of CEO Overconfidence on risk-taking of commercial banks.Secondly,in the empirical analysis,the unbalanced panel data of 30 commercial banks are used to analyze.In addition,considering the impact of the nature of equity,the total sample is divided into two categories: state-owned banks and non-state-owned banks,which are verified separately.In the robustness test,two methods are used to test the robustness of the empirical results.Finally,this paper finds that:(1)the higher the level of CEO overconfidence,the higher the level of bank risk-taking;(2)the level of CEO overconfidence and risk-taking of non-state-owned commercial banks has a significant positive impact,but there is no such impact for large state-owned commercial banks and urban commercial banks.Based on the above analysis,this paper puts forward policy recommendations from the perspective of internal governance of commercial banks and managers themselves.In the aspect of bank governance,managers should strengthen supervision over managers by establishing independent directors,improving selection mecha nism and decision-making procedures,setting up chief risk officers,and improving performance appraisal system.In the aspect of managers themselves,managers should acquire more knowledge and understand their own shortcomings so as to improve their self-cognitive ability.