The Effect Of The Managerial Overconfidence On Listed Companies In Capital Structure And Debt Maturity Structure

In the recent years, a lot of psychical researches show that people are likely to be irrational in economic movement, in which the most significant and frequent character is overconfident, and managerial overconfidence is mostly serious. Related research found more than 99% of managers overestimate their managerial capability and profitability of their companies. Along with the rise of behavioral finance, scholars begin to realize the effect of managerial irration on enterprises'finance decisions. Viewing national and foreign literatures so far, researches on the effects of overconfidence to money market theory and enterprise investment and finance decisions are few. Although there are some scholars take note of the effect of managerial overconfidence on enterprises'financial decisions, and take primary theorical analysis on the effect of overconfidence on enterprises'financial decisions, the relative empirical researches are quite slow.Many scholars loosen the strict hypothesis of MM theorem from different point of view and put forward various theories to explain the debt finance behavior of enterprises. It includes information asymmetry theory, tradeoff theory and market timing etc. However,all these theories contain the hypothesis that investors and managers are rational decision makers. From the view of behavioral finance, this paper taking the companies listed on Shanghai A share stock exchange and Shenzhen A share stock exchange from 2003 to 2005 as samples, takes research on the effects of managerial overconfidence on listed companies'capital structure and debt maturity structure. The empirical results shows: managerial overcondidence is one of significant factors to companies'debt level and debt maturity structure. Managerial overconfidence has significant positive relationship with companies'capital structure and significant negative relationship with companies'debt maturity structure respectively, which means the debts of listed companies with overconfidence managers are higher than the others previously. What's more, companies with overconfidence managers are prefer to shorter debt maturity structure.We can draw a conclusion from above all that managers with high overconfidence degree overestimate yield rate and this kind of overestimation shall affect the finance judgment and it cause that the existing shareholders don't want to share the future profits with fresh shareholders, so these companies prefer debt finance to stock finance and it leads to high liability ratio. In the meanwhile, overconfidence managers overrate their manage ability and profit ability of the investment item, and they believe the yield rate is higher than the actual rate and the payback period is shorter, so they incline to borrow more short-term debts.