The Role of Culture in Shaping Managerial Overconfidence and Its Impact on Financing Decisions

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Traditional economic models that assume rational decision-making may not accurately capture the complexities of real-world financial decision-making. Behavioral Decision Theory can explain the gap between classical capital structure theories and inconsistent empirical evidence. Under the assumption of bounded rationality Behavioral Decision Theory linking cultural values, overconfidence and financial decision making. Culture is an important aspect in organization which need close attention. Culture play a vital role in shaping behavioral biases. Overconfidence is one of the well-known cognitive biases in financial decision making that often seen in managers. Cultural differences and managerial overconfidence have impact on financing decisions.