Managerial Overconfidence,internal Control And Corporate R&D Investment

Innovation is an inexhaustible motive force and the main source of a country’s sustainable development. With the accelerating pace of economic globalization and increasingly fierce competition in international market, China has been committed to becoming an innovative country that has the ability to innovate independently. As the most important part of innovation activities, R&D spending is an effective way to enhance the core competitiveness and realize the economic benefit for an enterprise.However, compared to developed countries, China’s corporate R&D investment is still in the lower level, which needs us to pay attention to how to increase both the intensity and the efficiency of R&D investment.As the setters and the executors, overconfident managers’ s psychological characteristics will be reflected in firm decisions. R&D investment is one of the main parts of corporate investment decisions could be affected too. Meanwhile, some scholars have found that corporate governance makes a great impact on R&D investment as well as the investment behavior driven by overconfident managers. And it’s an attractive topic to make a deep research into how internal control affects R&D investment, which has a close relation with corporate governance. The prior literature provides a wide range of empirical evidence on the factors to R&D investment while few study focus on managerial overconfident and internal control. So the research of this paper is with a certain theoretical significance and practical value.The main content of this paper consists of five parts. The first part is an introduction, describing the research background, significance, research methodology and framework, as well as the innovation point of this paper. The second part is the literature review, which from the perspective of managerial overconfidence, internal control and the factors affect R&D investment to classify. The third part is the theoretical analysis and hypothesis proposed, introducing the related theory firstly, then analyzing how managerial overconfidence and internal control influence R&D investment activities and making a further discussion about whether the difference of internal control quality will affect the relation between managerial overconfidence and corporate R&D investment. Based on the above analysis, the paper puts forward research hypothesis. The fourth part is the empirical analysis. This paper selects Shanghai and Shenzhen A-share listed companies that disclose the data about R&Dexpenditure as research samples from 2009 to 2013, and tests the proposed hypothesis.The fifth part is the conclusions and suggestions, including research findings, policy recommendations and limitations of the study.The findings of this paper are as follows: firstly, overconfident managers are more willing to increase R&D spending. Secondly, internal control is positively related to R&D spending. Thirdly, with the higher quality of internal control, the positive relationship between managerial overconfidence and corporate R&D investment becomes weaker. In other words, improving the quality of internal control will constrain overconfident managers’ decisions. This study not only enriches the literature for the impact of managerial overconfident on corporate decisions and the economic consequences of internal control, but also provides an important and useful view to the research of R&D investment on factors. At the same time, this paper is helpful to improve the decision-making mechanism of enterprise managers, and it also indicates the construction of internal control system on companies in recent years has achieved good results.