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Managerial overconfidence and corporate policy decisions in UK Ccpanies

Zhou, Jie (2008) Managerial overconfidence and corporate policy decisions in UK Ccpanies. PhD thesis, University of York.

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Abstract

Managerial overconfidence, as a particular form of managerial irrationality, concerns that some managers are less than completely rational and tend to overestimate the outcome of the investment projects under their control. This study focuses on the impact of managerial overconfidence on corporate policy decisions. There are two main objectives. First, it explores the consequences of managerial overconfidence for investment decisions and the cash holding policy by emphasizing the role of financial constraints. Second, it investigates the potential role of managerial overconfidence in determining debt maturity. Using an original and very detailed dataset for a large sample of UK listed firms, we show that investment by overconfident managers tend to be more sensitive to internal funds in financially constrained firms identified by leverage, dividend, age and cash. Meanwhile, a cash holding policy can be associated with investment decision by overconfident managers. We argue that, though investment can increase cash flow sensitivity of cash in financially constrained fines identified by leverage and dividend, managerial overconfidence can reduce this positive relationship. Moreover, managerial overconfidence can induce a biased debt maturity structure. It seems that overconfident managers can take advantage of short-term debt to signal their perceived firms' quality to the market. Hence, firms with managerial overconfidence tend to increase the negative relationship between long-term debt and firms' quality. Finally, we find that the impact of managerial overconfidence on corporate decision can also vary with different corporate governance mechanisms. We show that the impact of managerial overconfidence on corporate policies in firms with weak corporate governance mechanisms (i. e. lower ratio of non-executive directors in boards, lower blockholders' ownership) is pronounced, whereas, in firms with good corporate governance mechanisms, it turns to be insignificant.

Item Type: Thesis (PhD)
Academic Units: The University of York > Economics and Related Studies (York)
Identification Number/EthosID: uk.bl.ethos.507492
Depositing User: EThOS Import (York)
Date Deposited: 11 Nov 2016 17:34
Last Modified: 11 Nov 2016 17:34
URI: http://etheses.whiterose.ac.uk/id/eprint/14125

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