Managers’ Overconfidence,Board Independence And Corporate Value

Adam Smith systematically expounded the "rational economic man" hypothesis for the first time in "The Wealth of Nations".Later scholars mostly studied on the basis of the "rational economic man" hypothesis.However,with the abnormal phenomenon of the capital market in the 1980 s,the traditional "rational economic man" hypothesis could not be reasonably explained,and behavioral finance came into being.Behavioral finance believes that people’s judgments and decisions in economic activities are affected by various psychological factors such as cognitive processes,emotional processes,and will processes,and are not completely rational.Research shows that managers have irrational behaviors such as overconfidence,anchoring effects,and frame dependence.Among them,the most stable is overconfidence.Managers’ overconfidence manifests itself as overestimating their own level of management and risk control,optimistically estimating the expected returns of decision-making projects,and ignoring possible risks.As the leader of the company’s operating principles and major strategic decisions,managers’ overconfidence will inevitably have a significant impact on the company.Corporate value,as a comprehensive indicator,is a comprehensive reflection of corporate profitability,development potential and future risks.As the maximization of corporate value instead of the maximization of profits has become the goal of business development,corporate value has increasingly become a key topic for scholars to study and discuss.Some scholars have discussed the relationship between manager’s overconfidence and corporate value,but have not formed a unified opinion.Perhaps due to overconfidence as a subjective psychological state,scholars have not found a unified measure,and based on different theories and different research perspectives,scholars have reached different conclusions.This has led to controversy about the effect of managerial overconfidence on corporate value.Based on a review of existing research,this article continues to explore the relationship between managerial overconfidence and corporate value in order to enrich the study of the economic consequences of managerial overconfidence.In addition,the board of directors,as the core of corporate governance,is an important supervisory and decision-making body.Effective board governance can effectively suppress irrational behavior of managers and enhance corporate value.However,the key to the effective functioning of the governance function of the board of directors lies in whether the board of directors can maintain its impartiality and independence when supervising decisions.Board independence has always been the focus of board governance research.Different scholars have different measures of board independence.Fama and Jensen first proposed that the board should have a certain percentage of independent directors,and that the chairman and general manager should not People serve,emphasizing the independence of the board.Therefore,based on the experience of scholars,the role of board independence in regulating managers’ overconfidence and the relationship between corporate value is studied from the perspective of the proportion of independent directors and separation of chairman and general manager.Based on this,this article will continue to explore the impact of managerial overconfidence on corporate value,and study the moderating role of board independence on the relationship between the two.This paper defines managers’ overconfidence as explanatory variables,corporate value as explained variables,and board independence as moderators to research the relationship between them.By reading a lot of relevant literature,the theoretical basis and research conclusions of the predecessors related to this research have been sorted out,and the relevant hypotheses have been put forward based on the theoretical analysis.The data of 2013-2018 Shanghai and Shenzhen A-share listed companies was downloaded from CSMAR research database for selection,sorting,and sorting as research samples.Construct related models,use descriptive statistical analysis,correlation analysis and regression analysis to conduct empirical analysis,provide data support for the hypotheses proposed by theoretical analysis,and verify the correctness of the hypotheses.In the end,the following conclusions were reached:(1)Managers’ overconfidence is negatively related to corporate value;(2)The higher the proportion of independent directors,the more it can suppress the negative influence of managers’ overconfidence on corporate value;(3)The separation of chairman and general manager can reduce the negative impact of managers’ overconfidence on corporate value.It also puts forward relevant suggestions from the three aspects of improving the managerial selection,training,assessment and incentive mechanism;optimizing the project decision-making process;enhancing the independence of the board of directors and improving the governance level of the board of directors.At the same time,the shortcomings in the research are sorted out in order to enrich the related research in the area of managerial overconfidence.