Managerial Overconfidence,Market Competition Degree And Corporate Innovation Behavior

Obviously,whether hypotheses close to the reality is of great significance.Distinct from traditional financial theories,Upper Echelons Theory broadens the boundary of the hypothesis of human rationality,and argues that managerial psychological characteristics are of great importance in corporate strategic choices.Rich literature also shows that overconfidence,as one kind of psychological characteristics,can affect corporate general investment through affecting the cognitive process and decision-making results of managers.In contrast,innovation investment is a unique type of corporate investment.Given that innovation behaviors are helpful in building competitive advantages for enterprises and high-speed growth of regional and national economies,the research on the relationship between managerial overconfidence and corporate innovation behavior gets disproportionate attention in terms of its importance.There are some limitations in the existing studies on managerial overconfidence and corporate innovation behavior:First,they pay scarce attention on the direct impact of managerial overconfidence on corporate innovation efficiency.Existing literature only examines the impact of managerial overconfidence on corporate innovation behavior from the dimensions of R&D investment and/or patent output,and argues that overconfident managers are better innovators.However,the increase in innovation input and output is not equal to an improvement in innovation efficiency.Inputs and outputs are just given progresses in corporate innovation,which is not able to reflect the full picture of the impact of managerial overconfidence on corporate innovation behavior.Second,there is a big difference between the existing studies about the impact of managerial overconfidence and the real business activities.As far as corporate innovation is concerned,patent applications are more a starting point than a sign of innovation results.Some studies have a vague understanding of the real corporate innovation process.The causal confusion in logical deduction and empirical testing adds no value in showing the full value of overconfidence.Third,existing studies show that the impact of managerial overconfidence on corporate decision-making is not linear,and only focusing on whether managers are overconfident is not sufficient to fully understand the evolution rules of corporate innovation behavior.Last but not least,market competition degree is an important contingent factor that affects the relationship between managerial overconfidence and corporate innovation behavior.However,there are mixed findings in terms of the role that market competition degree plays in the relationship between managerial overconfidence and corporate innovation behavior.To verify,not all overconfident managers are better innovators,and not overconfident managers are better innovators in any dimension,and what degree of overconfidence managers in which environment are better innovators,based on Upper Echelons Theory Prospect Theory and Re source-based View,with the data of China’s listed companies,this study empirically tests the impact of managerial overconfidence on corporate innovation behavior.Some scholars argue that fund data such as R&D investment are not sensitive in capturing corporate innovation behavior.On the one hand,companies that do not disclose R&D investment do not mean that they are not engaged in innovation activities.At the same time,the level of R&D investment data is determined by given accounting standards.Combined with patent data can protect the measurement of corporate innovation behavior from the bias problem-Therefore,we measure corporate innnovation behavior from two perspectives of fund and patent,On this basis3 we divide corporate innovation behavior is divided into three dimensions:innovation willingness,innovation results and de innovation efficiency,What’s more,we distinguish different levels of overconfident managers,and explore the impact of different levels of managerial overconfidence on corporate innovation behavior.Last,we investigate whether market competition degree can correct or magnify the investment enthusiasm of overconfident managers.The results show that:(1)Managerial overconfidence has different impacts on different dimensions of corporate innovation behavior.No matter from the perspective of patent or fund,companies with overconfident managers have a higher willingness to innovate,better innovation results,but lower innovation efficiency,compared with rational managers.After a series of robustness tests and endogenous tests,the above findings still stand.Further analysis shows that managerial overconfidence weakens the positive impact of corporate innovation results on corporate performance,which expands the findings on the relationship between managerial overconfidence and corporate innovation efficiency,indicating that even from the perspective of economic consequences,the impact of managerial overconfidence on corporate innovation is still not positive.(2)Different levels of managerial overconfidence have different impacts on corporate innovation behavior.Specifically,in terms of innovation willingness,compared with weak overconfident managers,strong overconfidence managers have more applied patent,but show a lower level of R&D investment.In terms of innovation results,compared with weak overconfident managers,strong overconfidence managers have more granted patents granted and higher level of capitalization expenditure.In terms of innovation efficiency,the efficiency of paten in firms with weak overconfidence managers is higher,while the efficiency of R&D investment utilization is higher in firms with strong overconfidence managers.(3)Market competition degree has a significant but unstable moderating effect on the relationship between managerial overconfidence and corporate innovation behavior.Specifically,on one hand,market competition degree amplifies the overwhelming relationship between managerial overconfidence and corporate innovate willingness,innovate results,and innovate efficiency.On the other hand,after distinguishing the levels of overconfidence,market competition degree weakens the difference of the impact of different levels of managerial overconfidence on corporate innovation behavior.On the whole,market competition degree may not play a role as an external governance mechanism.Compared with the existing literature,the main theoretical contributions of this paper include:(1)Developing the research on the impact of managerial overconfidence on corporate special investment,and broadening the application of Upper Echelons Theory,Prospect Theory and Re source-based View in corporate financial area.(2)Firstly exploring the reasons for the alienation of corporate innovation efficiency from the perspective of managerial overconfidence.(3)Investigating the boundary of the external environment of the impact of managerial overconfidence on corporate innovation behavior.This paper enriched and developed the literature which focuses on the relationship between corporate innovation behavior and managers’overconfidence literature by studying the moderating roles that market competition degree plays.The management suggestions this paper provide are:(1)At the managerial level,objective financial data cannot convince an overconfident manager’s investment willingness.And it’s totally the irrational psychological bias drives managerial decision-making.Combining the realistic performance of corporate innovation behavior in different dimensions will be helpful in identifying the level of managerial overconfidence.(2)At the corporate governance level,the bright side and dark side of overconfident managers cannot be offset.Although managerial overconfidence will increase firms’ innovation willingness and results,the existence of inefficiencies will erode previous efforts and benefits,thereby hindering the improvement of corporate value.Therefore,choosing managers with different level of confidence for companies in different stages of the innovation life cycle may be a new idea for optimizing corporate innovation behavior.(3)At the investor level,using innovation indicators alone cannot fully reflect the effectiveness of corporate innovation behavior,and attention on managerial psychological characteristics will help improve the quality of investors’ decisions.(4)At the regulatory level,as one external governance mechanism,market competition degree does not play a sufficient corrective role on irrational behavior of managers.Instead,the prosperity of the industry further releases the investment enthusiasm of overconfident managers.Thus,focusing more on the investment behavior in flourishing industries can improve the efficiency of regulators.