Effect Of Managerial Overconfidence Research Articles

The impact of management practices and managerial behavioral attributes on credit rating quality

PurposeThis study mainly aims to explore the impact of management practices and managerial behavioral attributes on credit rating quality in Tehran Stock Exchange.Design/methodology/approachIn this study, 214 firms were assessed from 2014 to 2020. The credit rating quality was measured through Technique for Order of Preference by Similarity to Ideal Solution and the entropy weighting method. In accordance with the theoretical literature, managerial entrenchment, managerial myopia, managerial overconfidence and managerial narcissism were considered as the managerial attributes. Furthermore, to examine management practices, cash flow management and accrual management were explored.FindingsThe results of this study showed that the cash flow from operations management and the accrual management has a significant positive effect on the credit rating quality. The managerial entrenchment, managerial narcissism and managerial myopia have significant negative effects on credit rating quality, while the effect of managerial overconfidence on credit rating quality is not significant.Originality/valueUnderstanding the factors that affect the credit rating quality is of a great importance. Considering the significance of cash management in the present era and the impact of managerial psychological and behavioral characteristics in the development of the organization, empirical results of this study can help investors, capital market regulators and other stakeholders to strengthen the firm and better decisions.

The Effect of Managerial Overconfidence on the Credit Rating

[연구목적]본 연구는 경영자의 과신성향이 신용평가에 미치는 영향을 분석하였다. 신용평가사가 과신성향의 경영자가 보고하는 낙관적 예측에 단순히 반응하여 신용평가를 수행한다면 상대적으로 높은 신용등급을 산정하게 될 것이다. 반면 신용평가사가 경영자의 과신성향을 파악하고 부정적 성과를 나타낼 위험을 반영한다면 신용평가등급이 낮게 산정될 수 있다. [연구방법]2001년부터 2020년까지의 유가증권 시장과 코스닥 시장에 상장된 3,422 기업-연도 표본을 대상으로 다변량 회귀분석을 수행하였다. [연구결과] 실증결과 경영자 과신성향은 신용평가등급과 양(+)의 관계를 가지는 것으로 나타났다. 이는 신용평가사는 경영자의 과신성향을 간파하지 못하고 경영자가 제공하는 낙관적 정보에 단순히 반응하여 신용등급을 높게 산정하고 있음을 의미한다. 그리고 추가분석을 통해 경영자의 과신성향과 신용등급 간의 양(+)의 관계가 성장기회가 높은 경우에 주로 나타나는 것으로 확인되었다. 신용평가사가 모든 과신성향의 경영자에 대해 등급을 높게 산정하는 것이 아니라 성장기회가 높은 경우에 한하여 등급을 높게 산정하는 것으로 해석된다. 또한 소속시장과 분석기간을 달리하는 추가분석을 통해 본 연구의 실증결과가 강건함을 확인하였다. [연구의 시사점]본 연구는 신용평가 과정에서 경영자의 과신성향이 충분히 고려되는지에 대한 분석을 통해 신용평가사의 분석 과정에 대한 통찰을 제공한다. 그리고 신용평가등급에 영향을 미치는 새로운 요인으로 경영자 과신성향을 추가하는 누적적 연구 결과를 제시한다. 마지막으로 본 연구 결과는 신용평가등급에 대한 제도 정비를 위한 정책적 시사점을 제공하면서도 신용등급 정보이용자에게도 정보 해석 과정에 유용하게 활용될 수 있다.

Effects of managerial overconfidence and ability on going-concern decisions and auditor turnover

I examine how the appearance of managerial overconfidence and managerial ability affect 1) auditors' decisions to issue a going concern opinion and 2) auditor dismissal rates after issuing a going concern opinion. Managerial attributes are likely to have an influence on auditors' decisions because auditors obtain and evaluate information about client management's remedy plans when there is substantial doubt about the entity's ability to continue as a going concern. While prior literature on managerial overconfidence classifies all managers who demonstrate overconfident behaviors in one group, I argue that the literature needs to take managerial ability into consideration when measuring overconfidence. I find that auditors are more likely to issue a going concern opinion to clients with seemingly overconfident managers only when the management who appears overconfident is also incompetent. I also find that auditors are more likely to be dismissed after issuance of a going concern opinion when the client company has seemingly overconfident management. Finally, I find that the association between managerial overconfidence and auditor dismissal subsequent to issuance of a going concern opinion is stronger when management is relatively more powerful than the company's audit committee.

The relationship between managerial attributes and firm risk-taking

PurposeThe main objective of the paper is to examine the relationship between managerial attributes (e.g. managerial entrenchment, managerial myopia and managerial overconfidence) and firm risk-taking on the Tehran Stock Exchange (TSE).Design/methodology/approachThe study’s sample comprises 150 companies listed on the TSE from 2011 to 2017. Risk-taking is calculated as the standard deviation (SD) of stock return. Explanatory factor analysis was performed to calculate the weight of each of the five variables managerial ownership, board independence, chief executive officer (CEO) tenure, board compensation and CEO duality as a proxy for managerial entrenchment. The study by Anderson and Hsiao (1982) was also used to calculate managerial myopia, and the study by Schrand and Zechman (2012) was used to calculate managerial overconfidence.FindingsThe results indicate that the effect of managerial entrenchment and managerial myopia on risk-taking of listed firms on the TSE is positive and significant, implying that an increase in CEO entrenchment is likely to give rise to risk-taking. The authors conjecture that this finding could be due to the investment projects impairing the firm performance in the long run. Furthermore, the effect of managerial overconfidence on listed firms' risk-taking on the TSE is significantly negative. Since overconfidence is one of the traits of narcissism and corporate managers tend to be encouraged and admired, it is implied that they tend to make efficient and low-risk investments that ultimately reduce the firm risk-taking.Originality/valueSeveral theoretical studies show that managerial behavior is a determining factor in the economy. One of the reasons which justify the originality of this study is the context and institutional environment. Undoubtedly, managerial behavior (e.g. managerial entrenchment, managerial myopia and managerial overconfidence) is expected to have some significant variations in developing countries compared to prevailing in developed countries, particularly in the Iranian stock market the economic sanctions. Furthermore, due to the direct impact of individuals' psychological and behavioral characteristics on their decisions and the effect of companies' risk-taking on increasing and decreasing shareholders and companies' wealth, this research is essential. Given the function of designed behavioral criteria for assessing risk-taking behaviors, the relationship between managerial attributes and firms' risk-taking is still unclear and investigated in this study.

Behavioral Corporate Finance

The second part of this series of articles, representing a preprint of my two-volume book „Behavioral Corporate Finance“, deals with the younger stream of Behavioral Corporate Finance, namely the approach of irrational managers and rational investors, which is discussed in detail in chapter 7 of the book. In particular, this stream analyzes how, in a world with rational investors, irrational managers destroy shareholder value. In this article, this is shown at the example of overconfident managers that make corporate investment decisions. The article presents and analyzes three effects of managerial overconfidence that may lead to value-destroying capital budgeting decisions.

CEO Overconfidence, Moral Hazard, and Investment

Using an agency theory framework, we examine the effect of managerial overconfidence on the interaction between planning and control problems. We consider a typical setting in which a manager makes an investment decision involving project selection and a production decision to implement the chosen project. Thus, adverse selection and moral hazard problems affect different facets of management decision making, which allows us to examine how overconfidence affects the interaction between adverse selection and moral hazard. We show that overall welfare implications depend on the kind of overconfidence: productivity-related or state-related. When the agent overestimates the productivity of his effort, the principal can actually exploit the overconfidence and induce him to provide more effort at lower cost. However, overconfidence can either exacerbate an existing overinvestment problem or it can mitigate an existing underinvestment problem. We show that productivity-related overconfidence unequivocally improves the principal's welfare. On the contrary, state-related overconfidence aggravates the effort incentive problem but can ameliorate the underinvestment problem. Overall, state-related overconfidence decreases investor welfare, consistent with the negative connotation we often ascribe to overconfidence.

경영자의 자기과신성향이 감사지연에 미치는 영향

경영자의 자기과신성향이 감사지연에 미치는 영향

Customer stability, managerial overconfidence, and enterprise investment in innovation: a perspective based on “Made in China 2025”

ABSTRACT Based on ‘Made in China 2025’, this paper empirically explores how customer stability influences innovation investment and the mediating effect of managerial overconfidence. The results indicate that customer stability significantly and positively affects innovation investment and that managerial overconfidence partially mediates this relationship. The effect significantly differs before and after ‘Made in China 2025’. Furthermore, the customer concentration enhances the impact of innovation investment on market value. Overall, by exploring the transformation and upgrading of the manufacturing industry, this study enriches relevant theories of supply chain management and provides practical guidance for innovation activities.

경영자의 과신성향이 재무적 제약과 조세회피에 미치는 영향

경영자의 과신성향이 재무적 제약과 조세회피에 미치는 영향

Crowdfunding Under Market Feedback, Asymmetric Information And Overconfident Entrepreneur

Abstract This article is the first one that considers a model of the choice between the different types of crowdfunding, which contains elements of the asymmetric information approach and behavioral finance (overconfident entrepreneurs). The model provides several implications, most of which have not yet been tested. Our model predicts that equity-based crowdfunding is more profitable than reward-based crowdfunding when an entrepreneur is overconfident. This is because the entrepreneur learns from the sale of shares before making production decisions. The model also predicts that an equilibrium can exist where some firms use equity-based crowdfunding, which contrasts the results of traditional theories (which have rational managers), for example, the pecking-order theory. It also contrasts traditional behavioral finance literature (e. g. Fairchild, R. 2005. “The Effect of Managerial Overconfidence, Asymmetric Information, and Moral Hazard on Capital Structure Decisions.” ICFAI Journal of Behavioral Finance 2 (4).) where equity is not issued in equilibrium.

Effects of Managerial Overconfidence on the Relationship between Corporate Risk-Taking and Firm Value

과신 성향의 경영자는 본래보다 위험을 과소평가하거나 이익을 과대평가해 위험추구와 관련된 다양한 의사결정을 함으로써 궁극적으로 기업가치에 영향을 미칠 수 있다. 이러한 관점을 토대로 본 연구는 국내 기업의 위험추구와 기업가치의 관계에서 경영자 과신의 효과를 분석하고, 이후 지배구조 및 경영자의 인적 특성 관점에서 과신의 효과에 대한 조절 요인을 총체적으로 검증한다. 2002년부터 2015년까지 유가증권시장 상장기업을 대상으로 경영자 과신의 원인 및 결과로 측정되는 변수들을 조합해 경영자 과신 기업을 식별한 뒤, 경영자 과신의 효과를 검증하였다. 분석결과 기업의 위험추구는 기업가치를 증가시키지만, 경영자가 과신하는 경우 해당 기업의 위험추구는 기업가치 하락과 연관이 있었다. 이는 과신 성향의 경영자가 해당 기업에 부적합하거나 과도한 위험추구를 유도함으로써 결국 기업가치를 훼손시킬 수 있다는 것을 보여주는 결과이다. 한편 기업 내·외부 지배구조 관점에서 사외이사 초과 선임, 양호한 이사회 역할, 재벌집단 소속, 경제정책 불확실 완화, 산업 내 경쟁 축소로부터 과신의 부정적 효과가 완화된다는 증거는 찾기 어려웠다. 반면 경영자의 평균 나이가 많은 경우 과신에 따른 기업가치 하락이 완화되어, 과거 국내 기업의 경우 경영자 과신의 부정적 효과가 특정한 기업지배구조 수단에 의해 통제되기보다는 그러한 심리적 오류를 갖고 있는 경영자의 인적 특성에 보다 의존함을 확인하였다. 본 연구의 실증결과는 국내 경영자의 대리인 문제 이외에도 그들의 과신 오류가 위험추구와 기업가치의 관계에 부정적일 수 있음을 실증적으로 보여주었다는데 의의가 있다. 추가로 본 연구는 과신의 부정적 효과를 완화하기 위해 지배구조의 통제에 선행하여 경영자 스스로가 과신 가능성을 경계하는 것이 무엇보다 중요하다는 점을 시사한다. 동시에 여타 지배구조 요인에 비해 경영자의 과신 행태와 직·간접적 연관성이 높은 이사회가 경영자의 의사결정 오류를 효율적으로 통제할 수 있도록 기업 내부적, 제도적 역할 보완이 보다 필요함을 시사한다.

경영자의 과신성향이 발생액의 지속성과 시장반응에 미치는 영향

경영자의 과신성향이 발생액의 지속성과 시장반응에 미치는 영향

경영자의 과신성향이 재무분석가의 이익 예측에 미치는 영향

경영자의 과신성향이 재무분석가의 이익 예측에 미치는 영향

경영자의 과대확신이 회사채 신용등급에 미치는 영향

경영자의 과대확신이 회사채 신용등급에 미치는 영향

Effects of managerial overconfidence on analyst recommendations

This study investigates the relation between managerial overconfidence and analyst recommendations. The empirical finding shows that analysts are less likely to issue upgrade recommendations for firms managed by overconfident CEOs. Similarly, analysts spend a longer time to upgrade stocks associated with overconfident CEOs. The effect of CEO overconfidence on recommendation revisions is non-monotonic. Analysts are more reluctant to upgrade firms with highly-overconfident CEOs. More experienced analysts are less susceptible to managerial overconfidence. Moreover, investors exhibit stronger response to recommendations for firms with overconfident CEOs.

The Effect of Managerial Overconfidence on Crash Risk

Purpose - This paper investigates whether managerial overconfidence is associated with firm-specific crash risk. Overconfidence leads managers to overestimate the returns of their investment projects, and misperceive negative net present value projects as value creating. They even use voluntary disclosures to convey their optimistic beliefs about the firms' long-term prospects to the stock market. Thus, the overconfidence bias can lead to managerial bad news hoarding behavior. When bad news accumulates and crosses some tipping point, it will come out all at once, resulting in a stock price crash. Research design, data and methodology - 7,385 firm-years used for the main analysis are from the KIS Value database between 2006 and 2013. This database covers KOSPI-listed and KOSDAQ-listed firms in Korea. The proxy for overconfidence is based on excess investment in assets. A residual from the regression of total asset growth on sales growth run by industry-year is used as an independent variable. If a firm has at least one crash week during a year, it is referred to as a high crash risk firm. The dependant variable is a dummy variable that equals 1 if a firm is a high crash risk firm, and zero otherwise. After explaining the relationship between managerial overconfidence and crash risk, the total sample was divided into two sub-samples; chaebol firms and non-chaebol firms. The relation between how I overconfidence and crash risk varies with business group affiliation was investigated. Results - The results showed that managerial overconfidence is positively related to crash risk. Specifically, the coefficient of OVERC is significantly positive, supporting the prediction. The results are strong and robust in non-chaebol firms. Conclusions - The results show that firms with overconfident managers are likely to experience stock price crashes. This study is related to past literature that examines the impact of managerial overconfidence on the stock market. This study contributes to the literature by examining whether overconfidence can explain a firm's future crashes.

Does CEO'S Holding of Vested Options Measure Overcon Dence?

Option-based measures of overconfidence are widely used as proxies for overconfidence in corporate finance. Overexposure of a CEO's wealth to the firm's idiosyncratic risk is taken as a sign of CEO overconfidence. The literature has used the measures to study the effect of managerial overconfidence on corporate investment, financial policy, innovation and merger and acquisition. The belief is that overconfident CEOs behave differently. We trace CEOs across firms to investigate whether option exercise decisions correlate with firm characteristics. We find that a CEO's decision to hold or exercise vested options is considerably driven by firm and market conditions. Our analysis casts doubt on the view that repeated holding of in-the-money options solely captures overconfidence.

Overinvestment, inflation uncertainty, and managerial overconfidence: Firm level analysis of Chinese corporations

We study corporate investment by considering both external economic factor and managerial behavior, in particular the dynamic interaction between inflation uncertainty and managerial overconfidence by employing a sample of Chinese companies. The empirical findings demonstrate that lower inflation uncertainty increases over-investment, and managerial overconfidence exacerbates such effect. Further analysis shows that over-investment in state-owned enterprises (SOEs) is mainly driven by managerial overconfidence, and the negative association between inflation uncertainty and overinvestment is due to managerial overconfidence. The effect of managerial overconfidence is mute in non-state-owned enterprises (non-SOEs). In addition, we find asymmetric impact of inflation uncertainty on corporate over-investment during different economic cycles.

The effect of managerial overconfidence on firm value: evidence from companies listed in Tehran stock exchange

<p>Overconfidence, one of the most modern concepts of behavioral finance, both in financial theory and psychology is important. The effects of overconfidence managers Company's procedures, including accounting policies, hence it is important that overconfidence can be inaccurate and inappropriate policies on investment decisions, finance or accounting result and costs heavy impose on companies. Article overconfidence effect on the value of the company's review. The company's value as a dependent variable using Q-Tobin measured. Overconfidence variable as well as the independent variable with studies based on measurement methods and their impact on the performance of 50 companies listed in Tehran Stock Exchange during 2011 to 2015 using regression analysis do. The results of this study showed that overconfidence on both methods have an impact on firm value.</p>

The effect of managerial overconfidence on investment

<p class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><span style="font-size: 9.0pt;">Overconfidence or experience-based learning theory in behavioral finance is a subsidiary of confidence. One of the most detrimental behavioral biases in the field of behavioral finance is that investors will manifest as a lack of understanding of the risk of capital loss, the transaction or the transaction repeatedly to find a hot stock and widely traded futures and having a non-diversified portfolio, all serious risks for the enterprise you are looking for. One of the implications of each common biases of overconfidence, lack of foresight is real. Therefore, it is necessary to protect investors against overconfidence and financial advisors to help them in this regard. Overconfidence leads investors to predict their skills over estimate and find the belief that they cannot market timing. Detection and mitigation of confidence too, is a fundamental step in designing the foundations of a good financial plan. Too much trust in their own people, the strongest findings in the psychology of judgment. In this paper, the risks of overconfidence management and examine its impact on investor portfolios.</span></p><span style="font-size: 18.0pt; font-family: 'Times New Roman','serif'; mso-fareast-font-family: Batang; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA;">The effect of managerial overconfidence on investment</span>