Research On The Correlation Of Managerial Overconfidence And Firm Risk Tasking

With the increasing competition in the market， the relationship betweenmanagers’ irrational behavior，especially cognitive bias of overconfidence，andcorporate financial decision has becoming a new hot issue. Based on the backgroundOf Chinese institution，there are few of studies on the relationship between managers’Overconfidence and firm risk taking. Therefore，this Paper will try to Study thefollowing questions: whether managers’ cognitive bias of overconfidence Exists inChinese listed companies? How does managers’ confidence influence firm risk taking?Moreover，how to change the relationship between the two during different lifecycle?And Firstly，this Paper traces Psychology origin of managers’ overconfidence，and expounds the inherent relationship between managers’ overconfidence andfirm risk taking. And then analyses reasons of firm risk behavior, expounds managers’the correlation of overconfidence and firm risk taking; Secondly, The indicator isdesigned to measure managers’ overconfidence, this paper researches howoverconfident managers choose corporate strategy by following the approach oflayer-upon-layer，and examines the correlation of managers’ overconfidence and firmrisk tasking. Third, this paper analyzes the relationship between both how to changewith different life cycle of China’s listed companies.The main contributions of this Paper are reflected as follows:1. The Paper designs the indicator to measure managers’ overconfidence basedon the listed company earnings forecast system of China. Using the manager stockholdings constructs the metric managers’ overconfidence index. This indicator is moreoverall and objective and offers analytical tools for related research. According todomestic and foreign research, the paper choose whether managers invest efficienttechnology project to measure firm risk taking, and select main business growth rateas the standard to measure life cycle.2. There are few of empirical studies about the correlation of managers’overconfidence and firm risk taking in China. This paper is on the relationshipempirical research. The independent variable is a dummy variable, so the paperselects a logistic regression to verify the relationship between the two. Through aseries of analysis, this study found that no matter in which life cycle, overconfidencemanagers are inclined to firm risk taking. 3. Company policies are more and more prone to take risks. This paper from themanagerial overconfidence perspective, in view of the different life cycle observedcorporate decision. As the business continues to grow, the correlation of managerialoverconfidence and corporate risk taking behavior can be changed, but the overalldirection sexual relationship will not change. During mature period and declineperiod overconfidence managers tend to take risk. In the growth period,overconfidence managers implement adventure policies more. Different from theexisting literature, this paper pays more attention to whether the company willadventure, and whether the correlation will be change during different life cycle; theresearch show that managers play a different color in different life cycle, therelationship overconfidence and firm risk taking will change.