Abstract
Corporate investment decisions are determined by a variety of factors, including various managerial measures, including overconfidence of managers, which are important determinants of corporate investment decisions. Most corporate executives prefer internal financing, but if internal resources are not sufficient to meet this need, they use external resources with the least degree of information asymmetry. The purpose of this study was to investigate the effect of managerial overconfidence on investment and the moderating effect of the internal financing method is on their relationship. The study consisted of listed companies in Tehran Stock Exchange during the period 2011 to 2016 and using a systematic elimination sampling method, 97 companies were selected. To investigate the research hypotheses, EVIEWS software and panel data regression method was used. The results of the research showed that managers’ overconfidence has a positive and significant effect on investment as well as underinvestment, but internal financing does not have a significant effect on the relationship between the overconfidence of managers and investment as well over-investment. But the effect of internal financing on the relationship between managers’ overconfidence and underinvestment was a significant positive. Finally, it became clear that internal financing had a significant negative impact on investment and over-investment.
Highlights
Investing is one of the most important tasks for company managers
The present study investigates the effect of managerial overconfidence on investment and the effect of internal financing on the relationship between them in companies listed on the Tehran Stock Exchange
Another research result showed internal financing had no significant effect on the relationship between managerial overconfidence and investment and overinvestment
Summary
Investing is one of the most important tasks for company managers. If managers are able to correctly identify valuable investment opportunities (positive net present value plans) in the market and invest appropriately in each of them, this will lead to company growth. Ahmadi and Ghalambar (2019) examined the effect of managerial overconfidence criteria on the risk of future stock price crashes in companies listed on the Tehran Stock Exchange Their results show that among the selection criteria for managerial overconfidence, overinvestment, debt-toequity ratio, net cash flow, dividend policy and capital expenditure ratio have a significant positive effect on the risk of future stock prices crash. Hasani Alghar and Rahimian (2018) investigated the effect of a psychological factor (managerial overconfidence) on the debt maturity structure Their results show that managerial overconfidence has a significant positive effect on debt maturity structure, and companies managers with overconfidence adopt a shorter debt maturity structure, by choosing a higher percentage of short-term debt, and provide the liquidity risk related to this policy does not deter them from doing so. Their findings showed that the two financing methods of bank loans and increasing capital are significantly and directly affected by CEO overconfidence and that CEO overconfidence has a significant, albeit reverse, the effect on financing from debt and share issuance
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