The Research Of The Morderating Role Of Managerial Discretion Between Overconfidence And Overinvestment

In recent years, it shows economic overheating in macro-areas andnon-investment efficiency in micro-enterprises,in which overinvestment isparticularly prominent. The traditional theory of corporate finance has maturelyexplained the phenomenon. However, the behaviors in the real world are not alwaysrational and decision-makers often tend to be overconfident. However, ourtheoretical research of behavioral finance in this field is far behind the other countries,empirical research is lagging behind. In addition, most of the existing research is onlyconcerned about the main effect of overconfidence irrational factors on the investmentbehavior of enterprises, but don’t deeper explore the role of boundary conditionswhich this main effect is to play.On the basis of the reference of company behavioral finance theory research, thispaper uses the data of China’ manufacturing listed companies from2007to2009, andconducts an empirical study on the relationship between the managers’overconfidence with the enterprises’ overinvestment. And by introducing this variableof managerial discretion, from the two levels of the manager’s personalitycharacteristics and the internal organization structure, trying to explore what factorscan strengthen or weaken the relationship between the managers’ overconfidence withthe enterprises’ overinvestment, thereby to dig out the role of the boundary conditionthat this main effect is able to play. Through empirical research, we draw thefollowing conclusions: Firstly, managers’ overconfidence has a significant positivecorrelation with enterprises’ overinvestment; Secondly, managers’ relativecompensation force will strengthen the positive correlation between the managers’overconfidence and the enterprises’ overinvestment; Finally, the business size and theproportion of independent directors will weaken the positive correlation between themanagers’ overconfidence and the enterprises’ overinvestment. In order to avoid theimpact of choosing a different proxy variable, the article also gets similar resultsthrough robustness test.Based on the above empirical outcomes, we propose: establish an effectivemechanism to constraint managers’ overconfidence; develop pay system in a scientificand rational way to bridge the pay gap between the manager and corporate otherexecutive; improve internal oversight mechanisms to absorb external independentdirectors to enrich Board; establish and improve the manager market, and separate the two post of manager and the chairman; accelerate the reform of split share structure toimprove the phenomenon of the absence of owner to realize the goal, that is to controlor weaken the manager autonomy space, thus effectively suppress the negative effectsof overinvestment caused by overconfidence manager.