Relations Between Managers’ Overconfidence And Financing Preference: An Empirical Research Based On Chinese Listed Companies

This article is from the perspective of corporate finance, exists in managersoverconfidence point of view, to explore managers overconfidence influence onChina’s internal and external financing preference of listed companies, and putforward some targeted suggestions.After analyzed the research conclusions of scholars both at home and abroad, thispaper via setting A-share listed companies in2007-2012as the samples, this paperaims to determine the measure of overconfidence variable of the executives inChinese listed companies. This study finds that: the selected eight indicators such as“industry risk”,“asset-liability ratio”,“the company asset scale”,“rate of return oncommon stockholders’ equity”,“managers shareholding proportion”,“managerscompensation proportion”,“revenue growth rate” and “net wealth levels” are themain and direct factors of impacting managers overconfidence. They could be used inthe principal component analysis, to obtain a comprehensive index of executiveoverconfidence indicators by determining the weights. With previous scholars utilizeda financial index to represent the executive overconfidence alone, compared to thecomprehensive index is more comprehensive and persuasive, this is a new variable,which is an innovative point of this study. On this basis, master samples divided intotwo samples, managers overconfidence and managers moderate confidence, set upmultiple regression model to analyze the influence on the company internal andexternal financing preference with varying degrees of managers confidence.Through theoretical analysis and empirical research, this paper obtain the followingconclusions: compared to moderate confidence, the overconfident managers willoverestimate the company investment projects which have the strong level of cashflow in the future, when the company needs for its investment projects for financing,top overconfident managers would prefer to use the internal financing, so sensitivitywill enhance, between corporate investment and cash flow.