Research On Managerial Overconfidence And Its Behavior Of Overinvestment

Based on the research paradigm of Behavior Finance Theory, This text study on the influence about the overconfidence and the overinvestment from the research perspective of nonrational and rational.Based on above,we test whether there are some correlation relationship about the overconfidence and overinvestment through we compose the theoretical model and empirical study about the overconfidence. We expect to find the new research field in the Behavior Finance. The results and conclusions as follows:⑴The managerial overconfidence measure.More and more researchers find the CEOes are overconfidence, but the measurement of indicator is difficult. It is the bottlenecks at home and abroad .The most difficult is how to built the variable of the overconfidence. the scholars use two parameter methods and one non-parameter method separately to measure those definition of overconfidence, but those definitions have limitation. So this text make the overlap of board chairman and CEO as the substitute measurement, and to expects to find the new research field in the behavior Finance. The overinvestment is tries to accept the nonoptimal capital opportunity for the corporate value, especially, the projects of the net present value is less than zero. The overinvestment research with trust Agent theory, capital structure,cash flow, dividend distribution is a popular issue in Chinese scholars' researches, but the relationship with overinconfidence is fresh.⑵The investment decision model in managerial overconfidence. Assumption that the market reason, the Managers who are overconfidence have the behavioral biases, those behavioral biases are influent the Investment decision and we abstract from informational asymmetries and agency problems and assume that the manager maximizes current shareholder value. We propose a model that demonstrates the effect of managerial overconfidence on corporate overinvestment and cash flow by an optimism parameter which represents the overconfident CEO who overestimates the returns to his projects by percentage.⑶The empirical results on the managerial Investment Behavior. We analyzed the main analysis variables and the achievement situation which are the China Securities Indices 300 (CSI 300) overall samples and the overconfidence grouping samples form 2003 to 2007. The main contributions include: The higher the degree of the gerentocratic overconfidence, the higher the overinvestment;The general manager's overconfidence is not only positive relativity with the corporation investment level, but also the investment level of them is more sensitive to cash flow than the level of moderate managers else.