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Do Investor Overconfidence and Loss Aversion Drive Saudi Firm Market Performance? The Moderating Effect of Corporate Governance

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  • Abdullah A. Aljughaiman

    (The Saudi Investment Bank Chair for Investment Awareness Studies, The Deanship of Scientific Research, The Vice Presidency for Graduates Studies and Scientific Research, King Faisal University, Al-Ahsa 31982, Saudi Arabia
    Finance Department, School of Business, King Faisal University, Al-Ahsa 31982, Saudi Arabia)

  • Kaouther E. Chebbi

    (The Saudi Investment Bank Chair for Investment Awareness Studies, The Deanship of Scientific Research, The Vice Presidency for Graduates Studies and Scientific Research, King Faisal University, Al-Ahsa 31982, Saudi Arabia
    Finance Department, School of Business, King Faisal University, Al-Ahsa 31982, Saudi Arabia)

Abstract

This study investigated the impact of investor psychological bias on a firm’s market value. In detail, we examined the effect of investor overconfidence (optimism) and loss aversion (pessimism) on firm market value. We also aimed to investigate the moderating effect of corporate governance on the relationship between investor behavior biases and firm market value. This study used a sample of 143 firms listed on the Saudi Stock Exchange over the period from 2012 to 2021. The results suggest that investor overconfidence affects a firm’s value positively. On the other hand, loss aversion is negatively associated with the firm’s market value. Furthermore, we find that corporate governance (measured by board size and board independence) enhances the positive association between overconfidence and firm market value. In contrast, we find that corporate governance seems to marginally mitigate the negative effect of loss aversion.

Suggested Citation

  • Abdullah A. Aljughaiman & Kaouther E. Chebbi, 2022. "Do Investor Overconfidence and Loss Aversion Drive Saudi Firm Market Performance? The Moderating Effect of Corporate Governance," Sustainability, MDPI, vol. 14(16), pages 1-15, August.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:16:p:10072-:d:888169
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