Study On The The Interrelationship Between Managers Overconfidence And Financial Decision

Financing behavior has always been the hot issue of theories field. Financialdecision determines the source of capital and the costs of capital, It plays an importantrole In the activity of enterprise value creation. Managers overconfidence are verycommon in the process of corporation management, the cognitive deviation ofoverconfidence will interfere with corporate financial decisions to a large extent.Withthe rational economics person assumption being questioned and the development oftheory of behavioral corporate finance, the relationship between managersoverconfidence and corporate financial decision has becoming a new hot issue. But theresearch about that is still in its infancy, especially the relationship between managersoverconfidence and corporate funding decision. In this background, this paper comparesthe distribution level during the year of2003-2009to examine how the managersoverconfidence affects the corporate funding decision.This paper constructs a systemic analytical framework of the financing decisiontheory based on theories of behavioral corporate finance theory, capital structure theory,debt maturity theory, trade-off theory and agency theory. Introduce the analysis of thefinancing environment and the characteristics of financing of our country, also therelationship between managers overconfidence and corporate funding decision.This paper divide the empirical test into two parts, the data of the first part comefrom the listed companies, adopt two methods as the measurement ofmanagers’confidence, one is “variations of equity holding”, and the other is “thefrequency of merger”.Distinguish the companies into two samples, State-OwnedEnterprises and non-State-owned Enterprises. On that basis, structure multivariateregression model to examin how the managers overconfidence influence debt financingrate, debt maturity structure, credit financing, board independence and learning effect.The second part of data comes from the questionnaire. In the basis of datareduction, wefirst do the reliability and the validity test, then extract factors from factor analysis. Atlast, we conduct correlation analysis and regression analysis with that factors. Thesecond part is used to prove the first part.The main conclusion of this article is as follows:Managers’ overconfidence has ansignificantly positive correlation with listed companys’ debt financing rate. Overconfident managers which in State-Owned Enterprises are more inclined todebt financing. In general, overconfidence managers are inclined to long-term liabilities,Overconfident managers which in State-Owned are preferred to long-term liabilitiesthan who are in non-State-owned Enterprises. Overconfident managers prefer creditfinancing, the proportion of credit financing appears a growth trend with the increasingof managers’ overeonfidene.With improvement of board independence, the relationshipbetween managers overconfidence and corporate debt financing. This paper also findtaht learning effect can inhibit overconfident behavior.At last, on the basis of former researchers’achievement, also combine with thispaper’s conclusions, this paper put forward some suggestions to avoid managersoverconfidence: firstly, establish the mechanism of professional manager. Managersrecruitment must be open and transparent. Secndly, improve and perfcet the superviserymechanism of corporate governance. Board independence should be increased byauthentication mechanism and incentive mechanism. Thirdly, build a learningmechanism for managers.This paper tries to put forward innovation as follows:Firstly, this paper is not only the first one to adopt two methods to measureoverconfidence, but also employ questionnaire to empirical test. So the sample of thispaper will be more comprehensive and rational, and prove the viewpoint more strongly.Secondly, managers who are in different ownership will produce different effect onfinancing decision. So, this paper divides the listed companies into State-OwnedEnterprises and non-State-owned Enterprises. Then draw a different conclusion: listedcompanies, especially State-Owned Enterprises, are favoriute to long-term liabilities.Thirdly, this paper tests the learning effects with financing decision on empiricalmethods. So this paper breckthrough the limitation that the former researchers justconsider the learning effects on theory analysis.