An Empirical Research On The Relevance Of Managerial Overconfidence And Debt Financing

In the field of psychology, scholars have confirmed that there exists that anumber of people have such psychology states that they regard themselves as “betterthan average”, which is called overconfidence because they overestimate theirabilities. The behavioral financial scholars use the psychological concept to explainthe managers’ abnormal behavior in the company’s decision-making. It’s a challengeto the “rational man” assumptions of traditional financial theory. The worldwidescholars use empirical research and survey analysis also confirm the presence of theoverconfidence in the managers’ financial decision-making. And the overconfidenceusually leads to the excessive investments, financing and mergers.This research concerns on the debt financing decision-making whichinfluences the company’s financial risk and long-term development. In this paper, thesize and maturity structure of debt financing decision-making is interpreted as twovariables. This article will find the correlation between overconfidence and the twovariables. As for the debt size, scholars have generally agreed that the higher thedegree of overconfidence is, the larger the size of the debt financing is(Heaton，2002；Hackbarth，2004；Chenshou and Chen Lili，2009). As for the debt maturitystructure, the conclusions are different in contrary. In order to examine whetherdifferent degree of the overconfidence cause the different results or not. In this paper,based on the measures of overconfidence, the sample is divided into strong and weakoverconfidence sub-samples. In the while, the paper use two dummies present thistwo sub-samples, and put dummies in the regression simultaneously. Via observingvariable coefficient signs and significance to test whether there are differencesbetween strong and weak sub-samples in the correlation of overconfidence and debtmaturity structure. At the same time, concerning the ownership feature and the industrial environment of China’s listed companies, this paper refines the research toexamine whether the nature of property right and the industrial competition affect thecorrelation between overconfidence and debt financing.Based on the researches of overconfidence and the debt financing, this paperuses empirical model. In the empirical test, we choose2009-2013as the sampleperiod. After the screening, we obtain7678sample observations. This paper usesasset-liability ratio presents the debt size, natural logarithmic value of the ratio ofshort-term debt and long-term debt presents the debt maturity structure. Duringempirical test, this paper uses descriptive statistical analysis, T-test for independentsamples, correlation analysis, regression analysis to test expectations hypothesis. Inthe end, the paper draws four main conclusions:(1)Overconfidence and debtfinancing present positive correlation, which is in accordance with existingresearches;(2)Overconfidence and debt maturity structure have correlation and thecorrelation between managers who are less overconfident, it appears to be negative,namely they tend to adopt long-term debt financing. But the correlation betweenmanagers who are more overconfident, debt maturity structure appears to be positive,namely they tend to adopt short-term debt financing;(3) The nature of property rightwill weaken the positive correlation between overconfidence and debt financing, butthe regulation effect of the nature feature on the correlation between overconfidenceand debt maturity financing is not significant;(4)Industrial competition will impairthe positive correlation between overconfidence and debt financing and meanwhile itwill have the same effect on the correlation between overconfidence and debtmaturity financing.