Research On The Relativity Between Overconfidence Of Executives And Enterprise Value

Executives,including manager,deputy manager,chief financial officer,secretary of the board of directors of the listed company and other personnel stipulated in the articles of association of the company,have the profound influence on the enterprise as the actual manager of the enterprise.As a self-fulfilling executive,it often strives to run the business and enhance the value of the firm.However,sometimes the decision-making of executives are unsatisfactory,excessive debt,blind expansion and other initiatives to bring huge losses,the agent problem is not uncommon.Throughout the past,the study on the value of overconfidence of executives is mainly from the perspective of corporate investment decision-making to explore the impact of overconfidence on corporate value.Previous studies have shown that: moderate self-confidence in favor of executives can seize the opportunities brought about by market competition,to make decisions that are conducive to business development.But there are some studies prove that excessive self-confidence of executives led to blind expansion and over-investment,or more to take debt financing model,resulting in cash flow is not enough then some of the high-profit items are given up.This paper argues that in a highly competitive modern economic environment,it is necessary to advocate moderate self-confidence,and only moderately confident people can stand out from the staff,competent corporate executives,and only moderately confident executives enable to bring enterprises a broader road of development.On the basis of previous studies,this paper explores the correlation between overconfidence and corporate value by using the scale of investment and financing as mediator.In this paper,we choose A-share listed companies in Shanghai and Shenzhen in the period of 2012-2015 as the object of study.We use Tobin's Q value as a measure of enterprise value,with new investment rate and asset-liability ratio as the scale of investment and financing.The top three executive pay as a ratio of total executive compensation as the measure of overconfidence executives,a total of 9521 executive confidence level samples,with statistical analysis,regression analysis and robust test.(1)The relationship between the self-confidence of the executives and the value of the firm is inverse U-shaped,that is,with the increasing of the degree of self-confidence of the executives,when the level of self-confidence of the executives reaches a certain critical value,the enterprise value reaches the maximum value,andthen the enterprise value declines with the increase of the self-confidence of the executives.(2)The level of self-confidence of senior executives is positively related to the scale of corporate debt financing,that is,the higher the confidence level,the more inclined to adopt the debt financing model.(3)The scale of corporate debt financing has an intermediary effect between the degree of overconfidence of executives and enterprise value,the intermediary effect of investment between overconfidence of executives and enterprise value is not significant.The research of this paper shows that overconfidence of executives has two sides to the enterprise value.First of all,a certain degree of confidence led to the scale of corporate financing debt increased,increasing the tax baffle effect and reduce the cost of corporate equity agency will increase the value of the enterprise.When the degree of over-confidence of executives exceeds a certain degree,the enterprise will bear heavier debt burden,facing a high financial risk,which will have a negative impact on corporate value.This study provides empirical evidence for the nonlinear relationship between overconfidence and firm value,which is helpful to comprehensively understand the influence of overconfidence of executives on firm value.