The Effect Of Managerial Overconfidence On The Foreign Exchange Exposure

With the rapid development of Chinese economy,and the steady progress of RMB internationalization,more and more Chinese enterprises take part in the international economic activities.At the same time,with the development of international trade,more and more enterprises are involved in international trade,and foreign currency assets held by enterprises have increased rapidly.Therefore,enterprises must establish a perfect management system of foreign exchange risk and use appropriate management strategies to avoid risk.Firstly,this paper reviews the domestic and foreign literature,and sort out data about the measurement of foreign exchange risk exposure,the measurement of management overconfidence and the influence factors of foreign exchange risk exposure.According to the existing literature,the factors such as asset-liability ratio,proportion of overseas income,size of enterprise,quick moving ratio and so on will affect the exposure of foreign exchange risk,but few documents analyze it from the perspective of management overconfidence.This paper argues that management overconfidence may have an important impact on the exposure of foreign exchange risk through financing decision,investment decision and merge decision.Secondly,this paper chooses the capital market method to measure the 108 monthly data of 805 non-financial listed companies.The results show that there are 70 companies with significant exposure to foreign exchange risk of these,35 were exposed to positive foreign exchange risks,indicating that corporate yields were negatively affected by the appreciation of the RMB,while the remaining 35 were positively affected by exposure to foreign exchange risks.In this paper,compensation ratio method and shareholding change method are used to measure management overconfidence in 70 companies with significant exposure to foreign exchange risk.The results show that there are 29 companies with management overconfidence under the compensation ratio method.There are 39 companies with management overconfidence in the stock-holding method.Thirdly,this paper analyzes the influence mechanism of management overconfidence on foreign exchange risk exposure,and points out that management overconfidence will have an impact on foreign exchange risk exposure through investment decision-making,financing decision-making and merger and acquisition decision-making.And put forward the hypothesis:foreign exchange risk exposure and management overconfidence is positively related.The results show that management overconfidence is positively related to foreign exchange risk exposure.As the other control variables,the exposure of foreign exchange risk is negatively correlated with the leverage and the scale;it is positively correlated with the return of total assets and the net cash flow generated by operating activities;and it has no significant correlation with the proportion of overseas income of enterprises,and the ratio of total assets turnover.Finally,this paper summarizes the results of theoretical analysis and empirical analysis,and puts forward some policy suggestions on how to improve the foreign exchange risk exposure of enterprises.