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Managerial overconfidence, internal financing, and investment efficiency: Evidence from China

Ying He, Cindy Chen and Yue Hu

Research in International Business and Finance, 2019, vol. 47, issue C, 501-510

Abstract: Using companies listed in China’s Shanghai Exchange and Shenzhen Exchange in 2010–2015 as a sample, we test the impact of managerial overconfidence on choice of internal financing and investment efficiency (investment scale; overinvestment and underinvestment). We show that internal financing can fund business opportunities and alleviate capital shortages but may also cause excessive investment, especially in firms with managerial overconfidence. This overinvestment problem is more significantly related to managerial overconfidence in state-owned than non-state enterprises.

Keywords: Investment, capacity and financing; Corporate governance; Behavioral finance (search for similar items in EconPapers)
JEL-codes: D25 G30 G41 (search for similar items in EconPapers)
Date: 2019
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