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Managerial Behavior and Capital Structure Decisions; Do Overconfidence, Optimism and Risk Aversion Matter?

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  • Marwan M Abdeldayem
  • Doaa S Sedeek

Abstract

This study aims at examining the importance of managers’ behavior in explaining the capital structure related decisions of the listed firms in the Egyptian stock exchange (EGX). Managers’ behavior data has been collected using a survey method (i.e. psychometric test) which specifies three aspects of the behavior (namely: overconfidence, optimism, and risk aversion) in addition to some demographic characteristics as suggested by previous studies particularly Graham et al. (2013) and Menkhoff et al. (2006). The sample of the study includes 47 mangers and 31 firms along with their related financial information which has been extracted from the published financial statements for a period of 3 consecutive years. The secondary data of the Egyptian firms and the responses from survey were fully analyzed. A cross sectional analysis is applied to assess the effect of the managers’ behavior on the corporate financial leverage level. Further, a hierarchal type of regression is used due to the existence of some control variables. The findings of the study reveal that managerial optimism and risk tolerance have a significant positive impact on the firm's leverage ratio, while managerial overconfidence has no significant impact on the firm's capital structure. Moreover, risk averse managers differ from non-risk averse managers in terms of the adopted leverage level of their firms, as risk averse managers tend to use lower leverage ratio level.

Suggested Citation

  • Marwan M Abdeldayem & Doaa S Sedeek, 2018. "Managerial Behavior and Capital Structure Decisions; Do Overconfidence, Optimism and Risk Aversion Matter?," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 8(7), pages 925-945.
    • Handle: RePEc:asi:aeafrj:v:8:y:2018:i:7:p:925-945:id:1721
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    Citations

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    Cited by:

    1. Hu, Jiamin & Li, Kailun & Xia, Yifei & Zhang, Jianing, 2023. "Gender diversity and financial flexibility: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 90(C).
    2. Malgorzata Rembiasz & Paulina Siemieniak, 2021. "The Risk of Undertaking Business Activity from the Perspective of Women in the Context of Covid-19 Pandemic," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 5), pages 637-645.
    3. Marwan Mohamed Abdeldayem & Saeed Hameed AL Dulaimi, 2019. "Privatisation and Financial Performance in Egypt Since 1991," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(4), pages 461-479, April.
    4. Marwan Mohamed Abdeldayem & Saeed Hameed Al Dulaimi, 2022. "The dynamics of crowdfunding campaigns in the Middle East: Does social capital matter?," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 40(1), pages 63-78.
    5. Wan Shah Shahdila-Shahar & Noryati Ahmad & Mohamad Nizam Jaafar, 2020. "Impacts of CEO’s Overconfidence in Financing Decisions on Shariah-Compliant Firms Listed on the Bursa Malaysia تأثيرات ثقة المدير التنفيذي في قرارات التمويل على الشركات المتوافقة مع الشريعة الإسلامية ," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 33(1), pages 117-131, January.
    6. Marwan Mohamed Abdeldayem & Saeed Hameed Al Dulaimi, 2020. "Investors’ herd behavior related to the pandemic-risk reflected on the GCC stock markets," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 38(2), pages 563-584.
    7. Bilgehan TEKİN, 2019. "The Factors Affecting Capital Structure: A Panel Data Analysis in the Context of Behavioural Corporate Finance," Sosyoekonomi Journal, Sosyoekonomi Society, issue 27(42).
    8. Yusuf Babatunde Adeneye & Ei Yet Chu, 2020. "Managerial Aversion and Capital Structure: Evidence from Southeast Asia," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 15(1), pages 155-183.
    9. Marwan Mohamed Abdeldayem & Saeed Hameed AL Dulaimi, 2019. "Privatisation as a Worldwide Tool of Economic Reform: A Literature Review," International Journal of Social and Administrative Sciences, Asian Economic and Social Society, vol. 4(2), pages 66-84, June.
    10. Ziyang Li & Qianwei Ying & Yuying Chen & Xuehui Zhang, 2020. "Managerial risk appetite and asymmetry cost behavior: evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(5), pages 4651-4692, December.

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