An Empirical Research On The Influence Of Managers Overconfidence On Excessive Investment

Investment activity is a very important economic activity of the enterprise, so the study of investment activity is always the hot spot of the academic research, especially the excessive investment behavior in the inefficient investment, which attracts the attention of many scholars. However, the research perspectives of most scholars are agency conflict, information asymmetry, free cash flow or financing constraints, as we all know, there i s a important premise of these perspectives which is the “rational economic man” hypothesis under the traditional financial theory, this theory has a assumption that subject is absolutely rational. As the increasing appearance of overcapitalization or insu fficient investment in the research, we can not get a reasonable explanation under this hypothesis about many behaviors, which makes us begin to question the rationality of this assumption. As the western psychologists and economists introduce the research patterns of cognitive psychology and social psychology to the traditional financial theory, behavioral finance theory arises at the right moment.“Irrational economic man” is the basic assumption of behavioral finance theory, and it believes that managers are not absolutely rational when making investment decisions because they are influenced by factors such as personal mood, mentality and irrational psychological, which affects the company investment decisions. After knowing this, we begin to discuss the perspective of investment behavior from the direction of the behavioral finance theory and we draw forth the topic of the influence of managerial overconfidence on excessive investment behavior. In this paper, after reading the literature of scholars before and summarizing the research achievements of predecessors, we comb and the review of the literature about managerial overconfidence, excessive investment and the relationship between them, apart from that, we draw lessons from the predecessors’ research methods to test the relationship between the managerial overconfidence and excessive investment behavior so as to verify the positive effect of the managers overconfidence and excessive investment behavior. This paper study the effect of the Managerial overconfidence on excessive investment and the regulating effect of governance structure of the board on the relationship between them from the angle of governance of the board of directors the same time. The governance structure of the board is an important part of corporate governance and the board is also the important department of the company, so its normal role in the regulation could inhibit overconfident managers’ irrational investment behavior to a certain extent. So this article explore the role of the governance structure of the board in suppressing the managerial overconfidence in irrational investment decisions from the five angles of diligence of the board, scale of the board, separation of chairman and general manager, the proportion of independent directors and the ownership concentration of board members. In this paper, using the empirical data of the a-share listed companies from 2012 to 2014, we find that the more diligent of the board and the more degree of separation of chairman and general manager, the weaker of the positive impact of managerial overconfidence on the excessive investment behavior in the company; The bigger scale of the board of directors and the higher ownership concentration of the company, the stronger of the positive impact of managerial overconfidence on excessive investment behavior in company; The regulated variable of proportion of independent directors is not a significant role and it has no governance effect which may relate to the perfect degree of the independent director system in our country. This article will enrich the theory of behavioral finance and develop a road for the research scope of investment behavior and the board of director’s governance. Besides that, we hope to provide some references for the perfection of the board of directors’ governance, the intensifying of the corporate governance and the curbing excessive investment behaviors.