Effect Of Managerial Irrationality On Investment Decisions Of The Listed Companies In China

Reasonable investment decision create values for enterprises. enterprise value increases only when the managers put limited funds in investments with positive net present values. Unfortunately, inefficient investment behavior is common in Chinese listed companies, which is expressed in two forms including underinvestment and overinvestment. Therefore, it is extremely essential to explore the relationship between managerial irrationality and investment inefficiency from the aspect of behavioral corporate finance.On the basis of a detailed summary of the findings proposed by previous academics, our paper aggregate the existing methods in measuring managerial irrationality, then build a reasonable measurement of managerial irrationality. Using Chinese A-stock market public panel data and the data of China Stock Market Financial Forecast Database from 2010 to 2013 as samples, we conduct an empirical research on the influence of managerial irrationality on internal and external investment efficiency and business performance, trying to find out whether corporate governance mechanism could inhibit inefficient investment caused by irrational managers or not.The empirical results show that managerial irrationality could negatively affect the external investment efficiency which easily trigger the decline of the operating performance. There is a positive correlation between the degree of managerial irrationality and business performance. Besides, both excessive pessimism and overconfidence will have negative impact on corporate performance. What’s more, corporate governance mechanism could dramatically relieve the decline in investment-efficiency and the performance of the whole enterprise caused by managerial irrationality...