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Does managerial overconfidence matter in explaining debt financing policy?

Author

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  • Sabri Boubaker

    (Groupe ESC Troyes en Champagne, IRG - Institut de Recherche en Gestion - UPEM - Université Paris-Est Marne-la-Vallée - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12)

  • Taher Hamza

    (Valorem - LOG - Laboratoire Orléanais de Gestion (1998-2011) - UO - Université d'Orléans)

Abstract

We investigate the role of managerial overconfidence in shaping corporate debt financing policy. Using a sample of 229 small French companies listed during 2003–2012, we show that overconfident owner–managers opt for less levered financing structures than their non-owner peers. Additional analysis shows that owners–managers are less likely to use debt in the presence of growth opportunities. Managers who are optimistic about future performance consider their firms to be undervalued and prefer internal financing to external capital markets that are considered highly costly. They consequently adopt a pecking order preference in financing decisions, particularly when they perceive the new projects as value increasing.

Suggested Citation

  • Sabri Boubaker & Taher Hamza, 2014. "Does managerial overconfidence matter in explaining debt financing policy?," Post-Print hal-01155607, HAL.
    • Handle: RePEc:hal:journl:hal-01155607
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    1. Buchheim, Lukas & Dovern, Jonas & Krolage, Carla & Link, Sebastian, 2022. "Sentiment and firm behavior during the COVID-19 pandemic," Journal of Economic Behavior & Organization, Elsevier, vol. 195(C), pages 186-198.
    2. Madi, Riski Amalia & Mutia, Hamrini & Wati, Enny & , sujono, 2021. "The Role Of Internal Financing In Mediating The Effect Of Managerial Overconfidence And Corporate Governance Towards Investment Efficiency," SocArXiv x7q6c, Center for Open Science.

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    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G0 - Financial Economics - - General

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