The Influence Of Managers’ Overconfidence On Corporate Expansions In Chinese Listed Companies

Corporate investment decisions is the economic behavior of enterprises to invest some resources in order to obtain the expected future profits, it is considered as an important measure of the company’s future development capacity. Many scholars and experts also do some study of the theory and practice, but most of the researches are based on the assumptions of the rational people on the efficient market hypothesis. It is proved that it is difficult to use rational hypothesis to explain the economic behavior of the non-rational decision appears in the financial markets, making the assumption of rational people to be challenged. Behavioral finance introduces the psychology and behavioral science finance, trying to explain and study the peculiar phenomenon of financial markets by a new perspective, especially the irrational behavior in decision-making. Overconfident tendency is the most stable impact factor which leads to irrational behavior. China is an emerging capital market, whether also exist overconfidence bias in business managers, whether this bias will influence enterprises’ expansion invest decisions, it is worthy for further study.This paper select the manufacturing firms which are listed before the December31,2007as samples, combined with the relevant literature and the theory of overconfidence, set forecast deviation as the managers overconfidence alternative indicators. An empirical test shows managers overconfidence of enterprises’ expansion behavior, in-depth analysis of the similarities and differences between overconfidence tendencies under the different types of actual controller. First, in accordance with the type of the actual controller, the sample is divided into the state-owned enterprises and private enterprises samples. Second, the paper studies the all enterprises in the sample, as well as state-owned and private sample manager’s overconfidence toward enterprises’ internal investment decisions. The last study analyses the relationship between the two types of samples managers’ overconfidence towards external investment decisions.Analysis of the regression results, we draw the following main conclusions:all enterprises samples showed managers overconfidence and corporate internal investment spending significantly positive correlation, the sample of managers of private enterprises and enterprises managers overconfidence significantly positively related to internal investment,the sample of state-owned enterprises and enterprise internal investment are positively correlated, but regression results are not significant, it is not stable enough. Then added cash flow indicators, managers overconfidence in internal investment decisions on financing activities generated cash flow can be more sensitive than the cash flow generated from operating activities. Finally, we added mergers and acquisitions as a dummy variable test results to show that managers of private sample enterprises easier for M&A activity, compare with state-owned enterprises, M&A decision-making behavior overconfidence was a significant positive correlation with managers overconfidence. The empirical results also show that the sample of independent director system of private enterprises has not effectively reduced the M&A decision-making behavior, firm size and revenue GROW prompted enterprises M&A activity. Finally, according to the conclusions propose policy recommendations for enterprises, regulatory authorities, In order to regulate the financial decisions of the company and construction of the professional manager market to contribute and guide enterprises to make rational investment decisions correct.