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Managerial overconfidence, internal financing, and investment efficiency: Evidence from China

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  • He, Ying
  • Chen, Cindy
  • Hu, Yue

Abstract

Using companies listed in China’s Shanghai Exchange and Shenzhen Exchange in 2010–2015 as a sample, we test the impact of managerial overconfidence on choice of internal financing and investment efficiency (investment scale; overinvestment and underinvestment). We show that internal financing can fund business opportunities and alleviate capital shortages but may also cause excessive investment, especially in firms with managerial overconfidence. This overinvestment problem is more significantly related to managerial overconfidence in state-owned than non-state enterprises.

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  • He, Ying & Chen, Cindy & Hu, Yue, 2019. "Managerial overconfidence, internal financing, and investment efficiency: Evidence from China," Research in International Business and Finance, Elsevier, vol. 47(C), pages 501-510.
    • Handle: RePEc:eee:riibaf:v:47:y:2019:i:c:p:501-510
    DOI: 10.1016/j.ribaf.2018.09.010
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    25. Zhao, Xing & Wang, Ying & Li, Jieyu & Li, Xiangqian, 2024. "The impact of director network distance on enterprise investment returns," Finance Research Letters, Elsevier, vol. 66(C).

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    More about this item

    Keywords

    Investment; capacity and financing; Corporate governance; Behavioral finance;
    All these keywords.

    JEL classification:

    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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