The Empirical Study Of Managerial Overconfidence Impacting On The Investment Decisions

Overconfidence theory compensates for the defects of the classic financial theory in individual behavior analysis and research methods, and promotes the financial theory research to more realistic directions. The theory focuses on applying the basic tenets of psychology and economics to improve decision-making, draws extensively on the outcome of psychology, sociology, economics, in particular the decision-making behavior, and explains the cognitive deviation of investment behavior. This article attempts to explore the relationship between managerial overconfidence and investments on the basis of controlling the feature variable of companies. Existing behavior financial literatures mainly concentrate in investor overconfidence impacting on decisions of companies. It is very few literatures in managers'research perspective. This article sought to do useful attempt in this regard.This article uses the research technique which the normative research, the empirical study and the case study unify. First we constructed one elementary theory frame on the basis of managerial overconfidence and investment decision-making. On the whole, this analysis frame is compatible with the logic reasoning and relative normative research, the descriptive and explanatory empirical study.By empirical study we found the following conclusions. First, overoptimistic managers who held stock options are more prudent in investments for professional reputation. But if they found that there is ample cash flow, they will have strong investment preferences. It can solve agent problems and investment behavior of listed companies to a certain extent to the shareholding of managers as an inherent incentive mechanism. Overoptimistic managers have management opportunity action in using of cash flow. In order to inhibit negative effects of blind investment of cash flow, we can reduce the cash flow which managers can own by debt. So it will reduce agent costs of cash flow. Second, according to analyzing the high-growth group, we can found that overoptimistic managers are not sure of increasing investment, but only in the possession of sufficient cash flow. In the low-growth companies, even though managers are overoptimistic and there is ample cash flow, they are difficult to have the tendency to increase investment by analyzing reality and prospect. Third, based on the different financing constraint conditions, we found that there are not some relationships in sensitivity of cash flow investment of managers and strength or badness of financing constraint. Fourth, we found that non-state-owned companies are more sensitive to cash flow based on different character of rulers, and state-owned companies are more vulnerable to the support of the state. Fifth, an efficient governance mechanism which can constrain could reduce bad effects of investment decisions. We can design more reasonable forms of business organizations to regulate them based on their characteristics by effective identification of managerial overconfidence. To avoid some effects of choosing different agent variables, we have the similar results by sound analysis.