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Title: Managerial overconfidence and corporate policy decisions in UK companies
Author: Zhou, Jie
ISNI:       0000 0004 2677 1380
Awarding Body: University of York
Current Institution: University of York
Date of Award: 2008
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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.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available