Managerial Overconfidence,Debt Contraints And Inefficiency Of Corporate Investment

Traditional economics assumes that everyone who participates in market economy activities is rational,and the decision-making made by rational people in market economy is consistent under the guidance of maximizing profits.Obviously in real life,not only is each person's endowment very different,but also each person's motivation is not the same.This kind of individual difference is manifested in various unusual phenomena in the market.Traditional economic and financial theories can not explain these phenomena comprehensively.With the rise of behavioral finance,many scholars have made some achievements in studying market economic activities from the personal characteristics of economic participants.Modern enterprises are uncertain in their business activities,and they are faced with risks at any time and anywhere.As business managers,besides mastering the management knowledge of business operations,they also need to have self-confidence to meet opportunities and challenges.But the arrogance of managers drags enterprises into the mud.Shi Yuzhu's self-confidence is one of the reasons for the Giant's rebirth,and Peng Xiaofeng's arrogance accelerated the breakdown of Lubao Neng.In recent years,the research focus of scholars has shifted to management overconfidence.Some scholars believe that management overconfidence can improve the innovation performance of enterprises,while some scholars believe that overconfident management will aggravate the conflict of principal-agent contradiction.Overconfidence is the result of cognitive deviation of things.If this characteristic exists in the management who controls the business activities of enterprises,it will be difficult for enterprises to make rational investment from a rational point of view.This paper attempts to explore the relationship between management overconfidence and inefficient investment.The financing and investment behavior of enterprises are part of the operation of the whole enterprise system,and they have mutual influence.MM theory holds that in the presence of a perfect market,the value of an enterprise has nothing to do with its capital.Even without considering income tax,the theory holds that the weighted capital cost of an enterprise will remain constant regardless of whether it is in debt or not and how high the debt ratio is.In the case of relaxing the assumption of MM theory,scholars generally believe that there are two functions of liabilities.On the one hand,the existence of liabilities may aggravate the conflict of agency contradictions between parties,on the other hand,liabilities can play the role of corporate governance.Among them,the governance function of debt restraint is mainly formed by controlling the free cash flow of enterprises and increasing supervision.This paper attempts to study the governance of debt constraints from the perspective of the relationship between corporate debt and management overconfidence and inefficient investment.This paper takes listed companies from 2009 to 2016 as samples,calculates the degree of inefficient investment of each company in each period by Richardson model,measures the overconfidence of management by the change of current ownership,and studies the relationship between overconfidence of management and inefficient investment of enterprises.Subsequently,when introducing the debt ratio of enterprises,we divide the floating and non-current liabilities in the region,and make an interactive term with the overconfidence of management,and put it into the regression equation to study whether the overconfidence of management and the inefficient investment of enterprises are significantly affected by the debt ratio of enterprises.The empirical conclusions of this paper show that: firstly,overconfidence of management is positively correlated with overinvestment of enterprises.Overconfidence of management will be too optimistic about the income and cash flow of spot investment projects,while underestimating the risk of investment and overestimating the cash flow of investment,and over-trusting the ability and information of individuals will easily invest in projects with negative NPV.Secondly,there is a significant positive correlation between overconfidence of management and underinvestment of enterprises.Due to overconfidence,management overestimates the benefits of future investment plans,overestimates their ability to control risks,and abandons some NPV positive projects,leaving the reserve resources of enterprises to invest in the later period.Thirdly,the current debt ratio is negatively correlated with the cross-term of Managerial Overconfidence and the level of overinvestment.Current liabilities often need to be repaid in an accounting year or a business cycle.Short-term cash outflow will restrain the tendency of enterprises to expand investment.Even though management is overconfident,it has to give up the opportunity to expand investment under the pressure of short-term debt.Fourthly,the ratio of non-current liabilities is negatively correlated with overconfidence and underinvestment.For the existence of non-current liabilities,on the one hand,enterprises need to generate stable cash flow from investment projects to support annual interest expenditure,on the other hand,they need to arrange to accumulate cash for each year to meet maturing debts.Even if the management is too optimistic about the future investment plan,considering the pressure of long-term debt,they will invest more in NPV positive projects to maintain the normal operation of the enterprise.This paper expands the foothold of managerial overconfidence.The foothold of previous scholars' research on Managerial Overconfidence and corporate investment behavior is mainly reflected in current investment projects,but the object of managerial overconfidence can also be investment plans in the long-term perspective.This article has a certain innovative significance from the governance effect of different maturity debt constraints on management overconfidence.