Managerial Overconfidence, Self-Attribution Bias, and Downwardly Sticky Investment: Evidence from Korea
- Authors
- Koo, Jeong-Ho; Yang, Daecheon
- Issue Date
- 2-Jan-2018
- Publisher
- ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
- Keywords
- corporate investment; investment-cash flow sensitivity (ICS); overconfidence; self-attribution bias
- Citation
- EMERGING MARKETS FINANCE AND TRADE, v.54, no.1, pp 144 - 161
- Pages
- 18
- Journal Title
- EMERGING MARKETS FINANCE AND TRADE
- Volume
- 54
- Number
- 1
- Start Page
- 144
- End Page
- 161
- URI
- https://scholarworks.bwise.kr/cau/handle/2019.sw.cau/1453
- DOI
- 10.1080/1540496X.2017.1398643
- ISSN
- 1540-496X
1558-0938
- Abstract
- The extant literature on behavioral corporate finance has explored the effects of overconfidence on investment-cash flow sensitivity (ICS) to explain overinvestment, yet it has overlooked the asymmetric behavior of investments in relation to changes in cash flow levels. This study examines whether investments behave asymmetrically responding to changes in cash flows and, if so, how managerial overconfidence affects asymmetric ICS. Using a sample of KOSPI and KOSDAQ firms in Korea, we find the incidence of downwardly sticky ICS in unconstrained firms. We then find that overconfident managers encourage ICS to be stickier than their rational peers do in unconstrained firms. Finally, we find that managerial overconfidence intensified by self-attribution bias induces ICS to get even stickier, suggesting more explicit evidence of corporate investment distortions. The results of alternative tests using the asymmetric models of Homburg and Nasev (2008) are qualitatively consistent with prior results. Overall, our findings imply a higher incidence of excessive investment commitments driven by overconfident managers.
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Collections - College of Business & Economics > School of Business Administration > 1. Journal Articles
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