| Investment activity is one of the company’s most important financial decision-making activities. The company’s value is the discounted value of the future cash flows which is generated by investment company project. The company’s investment activities are reasonable or not, will have a huge impact on shareholder value and enterprise value. In recent years, Chinese investment has been in a continuous state of overheating investment in stimulating national economic growth. It is the main driving force to promote the rapid development of enterprises, but also brings a huge risk. Most of the companies are uncontrolled and commit to blind investment, which not only results in the waste of social resources, but also limits the improvement of business efficiency; more seriously causes businesses lead to the development of poor. Then what is the main reason lead to such non-efficiency investment in the enterprise? Domestic and foreign scholars based on the rational assumptions, used "the financing constraint hypothesis" and "free cash flow hypothesis", which cannot fully explain why non-efficiency investments exist in the reality business. Foreign psychology experiments show that managers widespread the Overconfidence psychological deviation. A large number of psychological studies have shown that the behavior of human decision-making is usually not completely rational level. Mainly of the reality of people’s cognitive biases:excessive optimism, confirm prejudices, avoid losses, the illusion of control, the behavior of the group effect. Too much faith in their own judgment and overestimate the probability of success is one of the most common and serious understanding of overconfidence deviation. In many areas of work will be exhibited overconfidence, such as engineers, doctors and nurses, lawyers, managers, and entrepreneurs. But the study found that managers are more likely to exhibit overconfidence than in the average person. The managers of this psychological bias may seriously affect the investment decision-making activities. Thus, we learn from behavioral finance research, research managers overconfidence unduly influence the investment of the listed companies, continue to research the constraints of excessive investment generated by manager’s overconfidence from corporate debt, cash dividends, and independent director, hope to provide policy recommendations on excessive investment governance.Traditional financial theory explains the existence of the business activities of the non-efficient investment from the principal-agent and information asymmetry, they begin the study on the basis of "rational economic man" hypothesis. With economic development, enterprises have much behavior which can’t be reasonably explained by the traditional theory from financial vision. Foreign scholars firstly introduced the manager’s psychological characteristics to the impact on corporate investment behavior; study found that overconfidence psychological exist in groups, and is particularly prominent in the business managers. Overconfidence is one of the basic characteristics; it will affect the investment decisions of the managers in the business process. The traditional theory explains the reasons for non-efficiency investments because of information asymmetries and principal-agent problem which exist between business owners and managers. Inconsistent with the interests of managers and owners, managers will rely on the information mastered advantage to make the investment decision; they may use the money to the project which will let them get private interests, and destroy the value of shareholders and enterprise. Even if the enterprise does not have the principal-agent problem, managers will have the non-efficient investment behavior, because managers have overconfidence psychological tendencies more than the average person. Overconfidence psychological causes managers who believe decisions are correct according to their own data and information, value overestimated corporate investment activities may arise in the future, but underestimated the potential risks.Behavioral finance theory to explain manager’s overconfidence on corporate investment activities is not the negation of the traditional interpretation and research, but can expand the research areas. Financial theories are complementary and perfect. When the enterprises have agency problems and asymmetric information, Manager’s overconfidence may be a more serious impact on corporate investment activities. Manager’s overconfidence affects investment decisions by free cash flow. Under normal circumstances, the company has adequate cash flow; manager’s overconfidence business investment is more serious, easily lead to over-investment. When corporate cash flow is insufficient, overconfident managers would think that the higher cost of external financing and select internal financing, internal financing can’t solve a lot of money investment needed, overconfident manager’s only choice is to give up the net the present value of a positive project, resulting in a lack of investment in the enterprise. Whether over-investment or poor investment restricting the survival and development of enterprises, they will harm the interests of the shareholders.The earliest abroad scholar studied manager’s overconfidence impacted on corporate investment behavior, and obtained many valuable conclusions. Our research in this area has only just started, doesn’t establish a sound theoretical framework, how to measure manager’s overconfidence is different. Although the economic environment and cultural background of Chin’s enterprises are different from foreign enterprises, managers of these enterprises are widespread overconfidence psychological characteristics. Many enterprises in China are "monarch" thinking that the leader has absolute rights and neglect the importance of democratic decision-making on enterprise development."One-man" and the "number one" phenomenon exist in all types of organizations. Chinese traditional culture makes business managers always think they are better than others for the enterprise to create value, put them on a high-ranking position. The psychological is more prone to the leaders of state-owned enterprises, because they help the company out of the woods, played a pivotal role. Private enterprises have a flexible mechanism itself; promote the development of private enterprises by the support of national policy. Private business owners do not realize that the development of enterprises is not relied on non-market means; they often overestimate their operating capacity, and produce overconfidence. The above just proves Chinese business managers have the possibility of overconfidence psychological, but want to have a real impact on business practices also need some catalyst, while Chinese economic transformation during specific background happens to be on this catalytic role in promoting. So whether it is private enterprise or state-owned enterprises, managers have overconfidence performance.This paper learns from behavioral finance research to study the listed companies’managers’overconfidence which affect investment behavior. The study found that manager’s overconfidence is more prone to over-investment in non-efficient investment behavior, and therefore build reasonable governance mechanism is particularly important. Continuing research manager’s overconfidence generated from corporate debt, cash dividends, and independent director constraints effect of over-investment, and purposing some policy recommendations on over-investment governance.The paper’s structure is as followed:The first part is the introduction portion. Introduce the research background and significance and the current situation of the domestic and foreign research. In addition, the author introduces the ideas and research methods used in the paper in detail. Finally, the author introduces the possible contribution of this paper.The second part is a part of literature review and theoretical basis. This section reviews the research from the manager’s overconfidence, non-efficiency literature at home and abroad. In addition, the review of the literature on non-efficiency investments mainly from two aspects of its impact factors and restraint mechanisms summarized. Finally, introducing the theoretical basis of manager’s overconfidence affected on investment.The third part is the theoretical analysis. This section firstly defines overconfidence and its manifestations and introduces the manager’s overconfidence universality. Introducing how does overconfidence impact on the efficiency of investment theoretically, and finally how to reduce the efficiency of the manager’s non-investment from the corporate debt, cash dividends, and independent directors.The fourth part is the empirical research. First measure the main variables, build models and selected study sample, test managers overconfidence on investment efficiency. Then introduce governance variables to test whether these governance mechanisms reduce excessive investment behavior of managers. The paper selects the companies listed on the Shanghai and Shenzhen A-shares as a sample study. Variable definitions and descriptions of research, and then build the multiple regression model to test correlation and regression testing, and finally arrive at the conclusions of the analysis of empirical research.The fifth part is the part of the conclusions and policy recommendations. This section firstly summarizes the conclusions and puts forward recommendations to reduce the excessive investment from corporate debt, cash dividends, and independent directors. Finally, pointing the defects of this research and future research prospects.Based on the assumption, the paper selects the Shanghai and Shenzhen A-share listed companies in2008-2010as the sample, build three models. First, according to the model one, it builds a measure of regression residuals as corporate non-efficiency investments, then according to the model two which make regression by insufficient investment, over-investment and the full sample, drawn to the existence of the business even more serious degree of over-investment. Finally use sample of over-investment to study, the regression of model three is to test whether the three mechanisms can suppress manager’s overconfidence which caused over-investment behavior.This paper shows that, manager’s overconfidence and the company’s non-efficiency investment is significantly related, it indicates that overconfidence managers will affect the company’s investment activities. However, proving overconfidence listed company managers have a more high investment-cash flow sensitivity, manager’s overconfidence affects investment by free cash flow. When the enterprise has sufficient free cash flow, overconfident managers will be more willing to expand the scale of investment. In addition, debt and over-investment behavior of independent directors have certain constraints. Over-investment of the cash dividends has not showed suppression function. Companies need to improve the dividend policy, rarely more dividends are unreasonable.Limitations exist in this paper. Firstly, manager’s overconfidence measure pending further consideration; secondly, consideration of the articles of governance mechanisms is also not comprehensive enough. Thirdly, because of limited time and capacity, and also did not consider the impact of industry differences arising on investments. Therefore, in the future there are a lot of problems need to continue studying. Firstly, manager’s overconfidence reasonable measure, how to effectively identify overconfident managers and the degree of overconfidence, the next attempt to establish a quantitative index system suitable for the actual situation of Chinese enterprises; Secondly, manager’s overconfidence only qualitative judgment, lack of accurate quantitative calculation, which is the future direction of efforts; then, the Q value is selected to measure the growth of the enterprises and some choose the growth rate of sales revenue as an alternative variable, so letter study should try to identify the future growth of alternative variables more suitable for Chinese national conditions; Finally, we also need to study the efficiency of non-ownership structure, board characteristics, product market competition to inhibit over-investment. |
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