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Managerial Overconfidence，Firm Expansion and Financial Distress
——Some Empirical Evidence from China Listed Companies
Jiang Fuxiu Zhang Min Lu Zhengfei Chen Caidong (Business School, Renmin University of China,100872 Guanghua School of Management, Peking Univershity, 100871)
Abstract: Based on the data of Chinese listed companies from 2002-2005, we study the relationship between managerial overconfidence and firm expansion. We find that managerial overconfidence influences significantly the velocity of firm expansion, and it is significantly positive with firm total investment and internal expansion, and the degree of positive relationship is more when the firm has more cash flow. And we also find an interesting result that there is a negative relationship between managerial overconfidence and M&A, but not significant. Furthermore, we study the relationship of managerial overconfidence, firm expansion and firm’s performance by use of SEM model. We find that the investment of firms with overconfident managers will cause them into financial distress.
Key words: Managerial overconfidence; Firm expansion; Expansion velocity; Expansion approaches; Financial distress
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