Investor Sentiment, Manager Overconfidence And Investment Alienation

Chinese development has kept high speed after China got the accession to the WorldTrade Organization. The companies in China found the chance and took this opportunity toexpand their asset size. However, many of the companies just kept the higher rapid ofdevelopment and ploughed larger sum than they need. At last, it affected the operatingefficiency of enterprises and lead to the tremendous waste of economic resources. So thisarticle will study the phenomenon of inefficient investment from the micro level.It is mainly based on MM theory to research on corporate investment from the traditionaleconomic theory, which holds that the enterprise capital structure does not affect the value ofthe enterprise, and is based on the hypothesis of rational economic man. But In the realeconomy, the investor and the manager of the enterprise are always affected by theenvironment, development of the industry, operation of the company and personal traits,which result in a cognitive bias and wrong investment decision by the investor and themanager. This article researches the relation among the investor sentiment, manageroverconfidence and inefficient investment from the perspective of behavioral finance.First of all, this paper will explain the meaning of the investor sentiment, manageroverconfidence and investment alienation. Then review the previous studies and put forwardthe ideas and method of the study in this paper. At last, test the hypothesizes about the effecton the inefficient investment by investor sentiment, manager’s overconfidence, by the waythat analyze the data about companies listed A shares from2000to2012. The conclusion ofthis article is that the higher investor sentiment leads to a larger inefficient investment, so doesthe manager overconfidence. But the effect on the investor sentiment by the overconfidencewill weaken the effect on the inefficient investment by the sentiment.There are two important innovation points in this paper. First, this paper discuss therelation among the investor sentiment, manager overconfidence and the investment of thecompanies, instead of the relation of two of them. Second, there is a investment expectationmodel in the study that can calculate the level of investment alienation.