Empirical Research on Managerial Overconfidence and Corporate Overinvestment

This paper tests whether managerial overconfidence is associated with corporate overinvestment. Developing a proxy for managerial overconfidence is mainly based on the manager who is board chairman as CEO. This paper carries out an empirical test on the overconfident managers' behavior of overconfidence by means of the panel data of China Securities Indices 300 (CSI 300), ranging from 2003 to 2007, the results show that the overconfident managers are more inclined to overinvestment, that is to say, Ovcrinvestment is positively related to overconfidence of the managers. Compared with those companies whose managers are overconfidence, the managers of overinvestment are more sensitive to the cash flow, that is to say, when the company has the abundant cash flow, the overconfidence managers are more inclined towards overinvestment.