The psychological characteristic of managers’ overconfidence has seriously affected the financing decisions of companies. The method of performance prediction deviation is used to measure the extent of managers’ overconfidence, and then an Ordered-probit model is applied to investigate the relationship between managers’ overconfidence and financing order. The results point out that Chinese listed companies give first priority to short-term debt financing, with equity financing in the second place; the companies having overconfident managers prefer long-term liabilities financing to internal financing, and allotment financing to convertible bond financing. The companies having non-overconfident managers do quite the opposite.
Key words
overconfidence /
financing order /
financing decision
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