Study On The Relationship Of Managers’ Overconfidence, Industry Transformation Strategy Options And Performance

At present, China is in the critical period of the pattern of economic developmenttransformation and industrial structure restructuring. For enterprises at the micro-level,industrial transformation has become a popular choice to seek competitive advantageand sustainable development, especially because of the ever-changing businessenvironment and increasing market competition. Industrial transformation means aholistic change involving business direction, mode of operation with thecorresponding organizational model, and resource allocation. It is an uncertainprocess filled with potential risk, such as government regulation, market failures,making many enterprises not only did not achieve success, but into trouble,transformation results are not satisfactory as a whole. The transformation strategyoptions relate to the specific strategy implementation and subsequent management,and it will affect the effectiveness of enterprise transformation, and senior managersin the top of the organizational structure are undoubtedly the key factors in thestrategy making. Traditional decision theory sees people as the rationaldecision-makers, and agrees that they will choose the best decision based on expectedutility maximization. But psychology studies have shown that human decision is notentirely rational along with different degrees of cognitive biases, and will be affectedby personal feelings, ideas and environmental factors. And this character is morecommon in company managers. Overconfidence is one of the typical characters of thelimited rational behavior. It is the concept that people trust their own judgment,overestimate their own ability level and underestimate the power of the externalenvironment, and is the tested and most robust finding of the psychology. Especiallyfor company managers, given their extensive management experience, the coredecision-making positions as well as the private information advantage, they are morelikely to exhibit overconfidence tendencies. Strategy decision-making relates toenterprises sustainable growth, it will undoubtedly suffer psychological characteristicsof managerial overconfidence effects.In this paper, we choose the listed companies in Shanghai and Shenzhen thathave completed the transformation as the study sample from2003to2011. Firstly,establish the continuous evaluation model of managers’ overconfidence. Then fromtwo dimensions of the direction and method of transformation, we research the pathhow overconfidence affect transformation strategy options and performance. Furthermore, we explore the possible similarities and differences of the differentnature of companies. The results showed: managers’ overconfidence has a negativeimpact on short-term performance, while significant positive impact on the long-termperformance; The strategy options of type of weak correlation and method of externalmergers may make short-term accounting performance low, but the long term valuecan be improved; Further, the direction and method play significant intermediaryconduction effect between overconfidence and performance: overconfidence first rolein choosing the business transformation strategy, then impact performance throughexecuting the strategy. In this study, we put overconfidence, industry transformationstrategy options and performance into a unified research framework, breaking theanalysis of ideas that previous overconfidence or strategy options act on performanceas the independent roles, to a certain extent, expanding the study direction oftransformation alienation, and provide a reference for industry transformation.