An Empirical Study On The Relationship Between Managerial Overconfidence And Corporate Financial Behavior

Managerial overconfidence theory,as one of the most important theories about corporate finance,has been made ground-breaking researches and tries by domestic and foreign scholars.But it is still on the initial stage and the results are relatively limited.At the same time,the empirical studies are far behind the theoretical research. This paper,based on the behavior financial theory,tries to study the relationship between managerial overconfidence and corporate financial behavior,by relaxing the assumption of rational managers.Through the study,we expect to enrich the results in managerial overconfidence field,and provide useful lessons to management practices.From the perspectives of investment and debt financing,this paper makes an empirical study of the impact that managerial overconfidence on their financial behavior.The original sample is from the 2001-2006 annual data of the listed companies in China,and the degree of managerial overconfidence is measured by the entrepreneurs confidence index from National Statistics Bureau.Finally it comes to the following conclusions:On one hand,there is a positive correlation between managerial overconfidence and the level of corporate over-investment,especially when the cash flow is sufficient.On the other hand,there is a significant positive correlation between managerial overconfidence and the level of corporate liabilities lever,especially when the cash flow is insufficient.And the results also show that the overconfident managers preferred long-term liabilities.It has great theoretical significance that this paper enriches the research results in managerial overconfidence and related fields.In addition,the paper also puts forward specific policy recommendations.First,establish an effective mechanism to balance the level of managerial overconfidence.Second,establish a scientific and rational system to assess the investment projects and strengthen the corporate earnings management.Third,improve the company governance structure and the shares allocation.Fourth,establish and improve the salary incentives.Fifth,further improve the capital market mechanism.Sixth,strengthen the government regulatory.With the above recommendations,it is hoped that companies can promote efficient business operations and improve enterprise value,by establishing effective mechanisms to avoid the overconfidence managers to take negative financial behavior.