Managerial Overconfidence And Competition Effect Of Cash Holdings

Cash is the "blood" of the enterprise,and the cash holding behavior is also one of the important decisions in corporate finance.The researches of Traditional cash holdings and the effect mainly rely on in two ways which respectively is the precautionary motive caused by financing constraints and the opportunistic behavior agency problem.Since the outbreak of the financial crisis,more and more scholars reference traditional research framework,corporate cash holding behavior and its economic effect is placed in the background of industry to discuss prevention motivation and agency problem how to influence the relation between cash holding competition and the outcome of product market competition.But it is not difficult to see that no matter from which path,they are both in the framework of the classical economics theory-hypothesis of rational man-to discuss this question.Undoubtedly,it is unrealistic.In fact,managers often make decision under the uncertain conditions,and in these conditions,the over-confidence manager's behavior may don't meet the assumption of "hypothesis of rational man".Because of management have the difference in live experience,gender,age,and the like,these difference of the management's personal beliefs and emotions may influence company's investment decision.Therefore,if the management of cognitive bias was neglected in the studies of how cash holdings influence to product market competition results,the effectiveness of conclusions will can be influence.And the studies about the management of cognitive bias,the most widely subject is managers' overconfidence.Therefore,it is necessary to consider the role of managers' overconfidence in the relation between cash holdings and competitive outcome.The A-share listed companies from 2004-2014 as research samples,this paper empirically test how the level of cash holdings to influence on the outcome of market competition,and managerial overconfidence how to influence on the relation between cash holding and the outcome of market competition.This paper use the managerial background characteristics and the change in share holdings as the proxy variable of overconfidence,the study found cash holdings that higher than the industry average cash holding level have a strategic significance,it can change the result of market competition,so as to get industry relative product market growth.Compared to non-overconfident managers,overconfident managers with this strategic cash are more likely to play its competitive role.In order to explain this phenomenon,this paper takes the real option theory and agency theory as the research perspective,and tests the influence mechanism that the managers'overconfidence how to promote the competitive effect of cash holdings.In order to explain this phenomenon,this paper,based on real options theory and agency theory,tests the effect of managerial overconfidence on competition effect of cash holdings.Research shows that the promotion effect only exists in the companies with higher investment opportunities and in the companies without equity incentive.The result shows that overconfident managers strengthen this effect through faster capturing investment opportunities and mitigating the agency problem due to risk averse of managers.This paper may have three innovation.First of all,the existing research don't considerate the related mechanism which managerial overconfidence how to affect corporate decision-making in depth.This paper bases on the agency theory and real option theory to explore the influence mechanism between overconfidence and competition effect of cash holding and enriches the research in this area;Secondly,this paper provides a new perspective to study the traditional principal-agent theory that was neglected by the academia-managers who are risk averse give up the investment projects that have higher risk but net present value is positive for focus on reputation and self-interest considerations.And this paper also provides some enlightenment for the future from the perspective of the overall to measure how overconfidence to influence the enterprise value.Finally,the conclusion of this paper can help managers to deeply understand how the cash holdings to influence the economic outcome.When managers decide the strategy of cash holding,they should consider the industry situations,so as to realize the competition effect of cash holdings,promptly seize investment opportunities for gaining advantage in the market competition of the products.Enterprises should be according to its own growth situations and the extent of agency conflicts,timely and appropriately choices the managers who have the character of overconfidence,so as to promote the realization of the competition effect of cash holdings.The contents are arranged as follows:in the first part,the introduction,this paper introduces the main framework of the article and the definition of related concepts;the second part,this paper reviews the related research literature and puts forward the problem needing to solve;the third part,through the theoretical analysis,this paper puts forward the hypothesis;the fourth part study design,and descriptive statistics of variables;the fifth part for the empirical results and robustness tests;the sixth part that the conclusion of the study,explains shortcoming and puts forward policy recommendations.