Research On The Impact And Consequences Of Corporate Managers' Overconfidence On Investment Decision

In recent years,in order to adapt to the laws and requirements of economic development,China has begun to further carry out economic transformation and upgrading.At the same time,under the impact of the epidemic,the efficiency of social resource allocation has been further improved,and high-quality economic development is more necessary.As an important part of China’s national economy,private enterprises are an important object of social capital allocation and have a huge impact on the quality of economic development of the whole society.In the economic activities of enterprises,investment is one of the activities most closely related to resource allocation.It is not only related to the future development of enterprises,but also has a huge impact on the overall economic development of society.Therefore,the investment decision of enterprises has always been concerned.Previously,most of our research focused on the investment decision of enterprises from the perspective of economic factors.With the development of behavioral economics,management psychology and other disciplines,more and more studies have found that managers’ personal cognitive bias factors also have an important impact on enterprise investment decisions.Therefore,from the perspective of overconfidence in managers’ cognitive bias,this paper uses the methods of literature research and case studies to explore the impact process,path and consequences of managers’ individual overconfidence on the overall investment decision of K enterprises.Firstly,by means of literature research,referring to the existing prospect theory and high-level echelon theory,the process is divided into investment risk assessment stage,investment decision-making stage and internal control adjustment stage.At the same time,the specific investment decision-making process of K enterprise is brought into this process,and the influence process of overconfidence in investment decision-making is discussed;Then focus on the performance of overconfidence in the specific investment cases of K enterprises,and find out the impact path of overconfidence;Finally,we use the F-score model,z-score model and related financial performance to investigate the negative economic consequences of the investment decision made by managers under overconfidence for K enterprises.According to the characteristics of overconfidence of managers in K enterprises,the causes of overconfidence are explored,and suggestions for improvement are put forward.The results show that managers’ overconfidence will lead enterprises to underestimate the investment risk and the future cash flow of investment projects,but at the same time will overestimate their own ability,thus further leading to enterprises’ preference for debt financing when financing.Such irrational cognition will eventually lead to credit risk and financial distress of enterprises,which will bring great adverse effects to enterprises.The reason is mainly due to the early success experience of managers.