Research On The Relationship Among Managerial Overconfidence, Debt Financing Scale And Corporate Value

The research of traditional economic theory is based on the assumption of"rational economic man". In the past, many scholars are assuming that managers are"rational economic man", to research the relationship between corporate value and thedecisions made by manager. However, with the emergence of a number of marketanomalies, scholars start to throw doubt upon the hypothesis of "rational economicman"． In the process of gradually relaxing the hypothesis of "rationaleconomic man", there generate the behavioral finance theory. Different from thetraditional financial theory, behavioral finance theory consider the psychologicalfactors, found that corporate managers tend to exhibit overconfidence, herding effectand dependence frame work during the decision-making. Managerial overconfidenceis the most obvious psychological and is the most robust features the managers whohave shown.Previous studies showed that managerial overconfidence will have impact oninvestment and financing decisions of corporate, thus affecting the enterprise value.Some scholars believe that even if managers are loyal, their psychological ofoverconfidence will lead to over-investment and over-indebtedness of enterprises sothat enterprises may face financial crisis, which will reduce the enterprises value.There are also some scholars based on the "modern stewardship theory", proposedthat overconfident managers will act as a good housekeeper of corporate. They focuson their own faith, dignity and work to get satisfaction, so they will pay more to runthe company that can reduce agency costs and enhance corporate value. In addition,some studies showed that moderate degree of managerial overconfidence canovercome the problem of insufficient investment and increased effort level ofmanagers, the problems associated with high levels of debt is not serious. Therefore,they believe that moderate degree of managerial overconfidence will increase thecorporate value, but excessive managerial overconfidence will reduce corporate value.This paper argues that we should have a comprehensive view of the problem that how the managerial overconfidence impact on the corporate value, we should not only payattention to the negative effects of managerial overconfidence．The paper is on the basis of previous studies that use debt financing scale as themediator, verify the managerial overconfidence have a non-linear relationship withcorporate value. We selects the statistics of listed companies in2009-2013, useTobin’s Q to measure corporate value, use asset-liability ratio to measure corporatedebt financing scale. We use relative compensation of manager to measure the degreeof overconfidence. Finally, we obtained4288overconfidence samples. Foroverconfidence sample, we make regression analysis of managers overconfidence,corporate debt financing and corporate value, the conclusion is as follows:(1) Therelationship between managerial overconfidence and corporate value is an invertedU-shaped;(2)The regression shows a positive relationship between the degree ofoverconfidence and corporate debt financing;(3)The debt financing scale act as amediation role between the relationship between managerial overconfidence andcorporate value.This study shows that managerial overconfidence is a double-edged sword, acertain degree of managerial overconfidence lead to increasing corporate debtfinancing, increasing taxes and reducing the equity agency costs of corporate, whichwill increase corporate value. But an excessive level of managerial overconfidence isundesirable, the companies will bear a higher debt levels and face higher financial risk,which is bad for corporate value. This study provides an empirical evidence for therelationship between managerial overconfidence and corporate value, which is goodfor a comprehensive understanding of managerial overconfidence.