The Study On Managerial Overconfidence , Enterprises Expanding Form And Financial Risk

Since the 80 years of the 20th Century, the January effect,the Herding effect and some other abnormal economical phenomenon appear frequently in the capital market, the traditional financial theory cannot give reasonable interpretation of these abnormal phenomenon, behavioral finance theory came into being. "rational economic man" hypothesis is one of the most important hypothesis of traditional economic theory, behavioral finance theory discard this hypothesis, provide the additional explanation for many economic phenomena. Domestic and foreign researchers do some theoretical analysis and empirical testing to explain the relationship between management overconfidence and enterprise expansion behavior. The innovation of this paper is that research enterprise expanding activities comprehensively, including the relationship between management overconfidence and internal investment and M&A, the previous study often only focused on one aspect. In addition, the previous papers do not do much empirical research on the financial risk from the aspect of behavior finance, this paper research the relationship between financial risk and the expanding activities conducted by overconfidence managers empirically, which enrich the empirical research in this area.The overconfident managers are inclined to overestimate revenue and underestimate risk, so they are more likely to invest, including the internal invest and M&A. Meanwhile ,the expanding conducted by overconfident managers will increase the corporate's financial risk. This paper use 2006-2009 Shanghai and Shenzhen A-share listed companies as sample, deleting the finance industry,ST and *ST corporate, IPO corporate and missing value cases, at last there is 4553 samples, then test the relationship between management overconfidence and corporate expansion behavior. Meanwhile, the paper also examine the relationship between expansion advanced by the overconfidence managers and the corporate financial risk.The main results of this paper are as follows:(1)As one of the most common irrational human irrational factors, overconfidence do have some impact on human behavior. Manager's overconfidence will affect the expansion form of corporate, specifically, overconfidence managers will conduct internal investment more fast. But we do not prove that there is direct relationship between overconfidence managers and M&A activities. One reasonable explanation is that the control market of China is not mature enough, the motivation of M&A are not due to marketing reasons completely.(2)The expanding activities of overconfidence managers are more sensitive about cash, especially in the time when the cash is rich ,overconfidence managers are more likely overinvest. However ,the moderate effect of cash don not reflect in easing the under investing. The overconfident managers will reduce the probability of under-investing, regardless of funds situation .(3) Overconfident managers will increase the financial risk of the company, through conducting internal invest and M&A.