Executives Overconfidence, Corporate Governance And Performance Empirical Evidence From Listed Firms In China

The traditional economics was based on the assumptions of "rational economic man", as a rational man, manager will collect all the information at present stage, and analysis processes, so that they are able to make the right response to the market. But psychology experiments show that no one can be perfectly rational in the true sense, especially when they are not sure for the future, when people make a decision, they are affected by aspects of psychological and physiological such as their knowledge level, past experiences, mood, emotion and so on. Thus when making decisions, it is possible for them to deviate from the maximum benefit of target,and it could explain the strange phenomenon such as the effect of herd behavior, calendar and so on. At that time, he behavioral finance theory which is the combination of psychology and economics is appeared.Since people cannot be completely rational in economic activities, and in corporate governance, executives play very important roles, most companies’ ownership and management are separate. While executives hold a large part of the power, we have a question, does executive of some irrational behavior will affect the company’s performance? Overconfidence is a important characteristic in irrational behavior, in the existing research both at home and abroad, most people do research on relationship between managers overconfidence and company investment and financing, but rarely discuss directly overconfidence and corporate performance. So, this paper intends to explore the influence between managers overconfidence and corporate performance, at the same time we add some regulation of corporate governance variables so that we can figure out whether the adjustment factor can strengthen the relationship between executive overconfidence and the corporate performance.This paper can not only rich the evidence of behavioral finance theory, but also find some methods to adjust that managers overconfidence affect corporate performance from corporate governance, So it has strong practical significance. This article combine the method of normative research and empirical research, first, combing the management overconfidence research literatures, then putting scholars’method of measure of managers overconfidence and the reality of China and data availability into consideration, find a suitable method for this article to measure managers overconfidence:If the company share price increase is lower than the market index,and executive still not reduce the number of shares of the company, we say the manager is overconfident. On the basis of the overconfidence theory, behavioral finance theory and principal-agent theory, author introduced the research hypothesis, then using the non-financial listed companies’ data in our country’s from2007-2012,and use excel to sort out the data,then use SPSS did the relevant data’s descriptive analysis correlation analysis and regression analysis. Finally come to the conclusion as follows:①Managers overconfidence had a negative relationship with the company’s performance.It perhaps results from managers overconfidence causing company investment excessive or insufficient; When doing mergers and acquisitions, overestimate the value of target company, and pay too high price, lead to the company value impaired; Managers overconfidence will usually cause the company’s debt too high, like adopting the internal financing more than external financing. when choosing outside financing,they don’t like to adopt equity financing, a large amount of debt financing will affect capital structure of the company and reduce the company performance.②When the post of chairman and general manager united, the negative relationship between managers overconfidence and corporate performance is stronger, it means the post of chairman and general manager separated can become a corrective action for negative correlation between executive overconfidence and corporate performance.③The number of independent directors increasing cannot reduce the negative relationship between managers overconfidence and corporate performance. This suggests that the independent directors in listed companies of our country did not play its role of supervise.④Ownership concentration is conducive to reduce managers overconfidence’s effect on the corporate performance. Big shareholders can effectively reduce the level of managers overconfidence. ⑤In state-owned enterprise, the negative correlation between managers overconfidence and corporate performance is stronger. Because in state-owned enterprises,the controlling shareholder is generally state-owned assets supervision and administration commission, or government departments, managers are be assigned by the government, this is not conducive to supervise executives. A variety of special background lead to the supervision power of state-owned enterprises can’t correct the relationship between executive overconfidence and corporate performance.According to research conclusions, author puts forward several policy suggestions:①Strengthen the role of independent directors.It should have a system from the selection of independent directors to the protection for the rights of their execution and the final evaluation of the independent director.②Set up a scientific and rational decision-making mechanism, some of the company’s major decisions should be passed by system evaluation, rather than just rely on executives personal opinions.③Establish a sound professional manager market, improve the appointment system of the managers. In hiring managers, the managers’cultural background, work experience, job skills, and personality characteristics should be Considered, and choose a suitable manager to be the company’s executive.④Try to introduce the system of the post of chairman and general manager separated, especially in state-owned enterprises. Due to the special nature of state-owned enterprises, the post of chairman and general manager united will greatly affect the performance of the company.In this paper, there are still some shortcomings,for example, when took equity concentration as the regulated hypothesis, this article failed to consider the situation that the general manager is the appointed person by major shareholder, then the major shareholder cannot play a role of supervision on the senior executives, this may lead to some limitations in this paper; The method of overconfidence measure is not the perfect, and has subjectivity; When discussing how is managers overconfidence resulting in a decline in corporate performance, it is introduced directly by the theory hypothesis, rather than supported by empirical data. The above several aspects still need to be improved in the follow-up studies.