Managerial overconfidence, inefficient investment and stock price crash risk

Xin Li, Qian Zhang and Zhong Ren Fan

Finance Research Letters, 2025, vol. 83, issue C

Abstract: Utilizing data from China's Shanghai and Shenzhen A-share listed firms (2012–2023), this study examines the effect of managerial overconfidence on stock price crash risk and its underlying mechanisms. Empirical evidence demonstrates that managerial overconfidence significantly elevates firms' future crash risk, with findings maintaining robustness after addressing endogeneity concerns. Subsequent analyses reveal that overconfident managers exhibit heightened tendencies toward irrational investment choices, thereby amplifying corporate risk exposure. Heterogeneity tests indicate a moderating role of independent director systems in this relationship.

Keywords: Managerial overconfidence; Inefficient investment; Stock price crash risk (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:83:y:2025:i:c:s1544612325009444

DOI: 10.1016/j.frl.2025.107685

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