Investor Sentiment, Managerial Overconfidence And Equity Financing Preference Of Listed Company

A large number of studies have confirmed that China’s listed companies havesignificantly preferred equity financing. Traditional economic theory assumes that marketparticipants are rational, studies about corporate financing decision mainly from the aspects offinancing costs, agency and company characteristics. With the rise of behavioral finance, themost agree that investors and managers are partially rational. More and more scholars havebegun to study financing decisions from this aspect. The existing research mainly discussed theinfluence of investors sentiment on the stock price and then on the stock issuance, the influenceof managerial overconfidence on financing options. Few papers have combines the twoirrational behaviors. This paper combines investor irrational and manager irrational together tostudy their influence on equity financing.This paper uses the data of A-share listed company between2007and2011as thesamples, uses Momentum Effect indicators to measure investor sentiment, and uses the changeof managerial stockholding amount to measure manager overconfidence. By multiple linearregression, we conclude that investor sentiment have a significant positive influence on equityfinancing preference, while managerial overconfidence have a negative influence on it. Thenwe consider the two irrational behaviors in one model, we find that managerial overconfidencedecrease the sensitivity between investor sentiment and equity financing preference. Andinvestor sentiment can’t influence equity preference anymore when consider the two irrationalbehaviors. When exclude data of2008year, we find that investor sentiment can change the ideaof overconfident manager-reluctant to equity financing.In summary, the conclusions of this study support the equity financing preference of listedcompany in China. But this paper finds out the managerial overconfidence will weaken thispreference in a certain extent. This paper enriches the existing studies of financing decisions,provides a new perspective to explain the current financing state and guides the listed companyto form a reasonable financing structure.