Research On The Relationship Between Managerial Overconfidence And Investment Efficiency Of Chinese Listed Companies

To invest and to gain profit is a very important base for the continuous company operation,thus it has been a hot and important study point for both pragmatic and academic area.Scholars has studies the problems of investment efficiency from various points of view which,in sum,includes both classical way from the rational man hypothesis and the irrational way of behavioral finance.The outcomes of the study of investment efficiency problems from the rational man hypothesis mainly include MM theorem,agency theory,information asymmetry theory etc.MM theorem holds that investment decisions are irrellevent to capital structure in a perfect market.As far as there is positive return to investment opportunity,managers will invest because he can easily finance the investment in a perfect market."While as we all know that the Market is not perfect at all.There are various kinds of fiction which includes agency problem and information asymmetry.These two shools of thoughts both believes that investment is related with internal cash flow.Agency theory holds that because of managers' persuit of self intrests,they would overinvest at the shareholders' cost.And information asymmetry school take the point that infination asymmetry makes the cost of external finance unreasonably high so managers would refrain if they need external finance.The classical theories did not take irrationality into consideration when they develop their theories.As the development of psychology,people have found that men are not totally rational when they make decisions.Lots of irrational factors play important role when a decision is made.This paper,from the point of behavioral finance,studies the relationship of the irrational man hypothesis which is overconfidence,growthoppotunity,ownership,free cash flow and investment decisions.It uses the data from the year 2008 to 2016 of the public firms of Shanghai and Shenzhen Stock Exchange Market and finds that overconfident managers intend to overinvest when they have abundant of free cash flow.And managers in companies with high growth opportunity tend to be more overconfident and thus intend to overinvest more;also overconfident managers in state-owned companies tend to overinvest more than rational managers in private companies.