Overinvestment, inflation uncertainty, and managerial overconfidence: Firm level analysis of Chinese corporations

Yizhong Wang, Carl R. Chen, Lifang Chen and Ying Sophie Huang

The North American Journal of Economics and Finance, 2016, vol. 38, issue C, 54-69

Abstract: We study corporate investment by considering both external economic factor and managerial behavior, in particular the dynamic interaction between inflation uncertainty and managerial overconfidence by employing a sample of Chinese companies. The empirical findings demonstrate that lower inflation uncertainty increases over-investment, and managerial overconfidence exacerbates such effect. Further analysis shows that over-investment in state-owned enterprises (SOEs) is mainly driven by managerial overconfidence, and the negative association between inflation uncertainty and overinvestment is due to managerial overconfidence. The effect of managerial overconfidence is mute in non-state-owned enterprises (non-SOEs). In addition, we find asymmetric impact of inflation uncertainty on corporate over-investment during different economic cycles.

Keywords: Overinvestment; Inflation uncertainty; Managerial overconfidence (search for similar items in EconPapers)
JEL-codes: D81 E31 E60 G18 G30 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:38:y:2016:i:c:p:54-69

DOI: 10.1016/j.najef.2016.07.001

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