Research On The Relationship Among Managerial Overconfidence,Investment Behavior And Firm Performance

All kinds of efforts made by enterprises in improving corporate performance are managers' management practices based on the internal and external environment of the company.Investment behavior is one of management practices.In the past,most of the studies were based on the assumption of "rational rationality",but they ignored the fact that "the economical person's cognitive bias is a normal state,not accidental." However,a large number of experimental psychology studies have confirmed that people are “limited rationality” and believe that overconfidence is a common psychological feature of human beings and is more obvious among managers.This irrational characteristic will undoubtedly produce investment behaviors for enterprises,then affects corporate performance ultimately.In addition,whether the investment behavior of corporate managers is efficient and reasonable or management activities can be steadily promoted are affected by corporate governance to some extent.Ownership structure is the core content of corporate governance.Does the existing equity structure of listed companies restrict or amplify the overconfidence of managers in investment activities?Based on the above background,this article takes the theoretical basis of managers' overconfidence theory,high ladder team theory,managers' irrational corporate investment theory and principal-agent theory,and uses 1,554 Shanghai and Shenzhen A-share listed companies from 2011 to 2016 as research samples.Using the fixed-effects model of panel data to test the relationship among overconfidence of managers,investment behaviors and performance,and the regulatory effects of equity structure.The main findings are as follows:(1)Managerial overconfidence can significantly reduce corporate performance.The over-confidence manager's cognitive bias characteristics can easily lead to over-investment in irrational activities such as investment and financing or liabilities,and then negatively affect corporate performance.(2)Overconfidence of managers can significantly promote corporate investment behavior.Overconfidence managers have the characteristics of overestimating returnsand underestimating risks.When faced with corporate investment opportunities,there are deviations in the perception of risks and benefits of investment projects.It tends to increase investment levels to excessive levels.(3)The corporate investment behavior and corporate performance have a reversed U-shaped nonlinear relationship that lags behind;the effect of corporate investment level on performance is fully apparent when it lags behind one stage;in addition,the impact of investment behavior on performance is consistent with the diminishing marginal effect,shows Inverted U-shaped trend.The optimal investment level is-1.06.When the investment level is less than-1.06,the effect on firm performance is positive;but when it exceeds-1.06,the effect on firm performance is negative.(4)Investment behavior has a complete negative mediating effect between managerial overconfidence and firm performance;that is,excessive investment caused by managers' overconfidence will significantly reduce investment efficiency,and thus damage the performance of the enterprise.Therefore,the negative effect of managerial overconfidence on firm performance can be explained through investment behavior.(5)In the stage of “Manager Overconfidence-Investment Behavior”,there was no significant regulatory effect of ownership structure over managerial overconfidence and investment behavior,indicating that there are loopholes in the corporate governance mechanism of listed companies in China,which cannot be controlled by managers.Excessive investment behavior resulting from overconfidence psychology has a constraining effect;but in the “Investment Behavior-Enterprise Performance” stage,the ownership structure can regulate the relationship between investment behavior and performance;among them,equity concentration and the equity checks and balances both play a positive role in investment level and performance.This shows that the ownership structure can influence the decision-making efficiency and Governance efficiency,and then affect the performance of the enterprise.According to the research conclusions,the policy recommendations forpromoting the long-term development of the company and the improvement of the company's performance are proposed from the aspects of management,corporate investment,and corporate governance.