Managerial hubris, firm expansion and firm performance: Evidence from China |
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| Authors: | Fuxiu Jiang Gregory R Stone Jianfei Sun Min Zhang |
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| Institution: | aSchool of Business, Renmin University of China, Beijing, China;bCollege of Business Administration, University of Nevada, Reno, Reno, NV 89557, USA;cAntai College of Economics and Management, Shanghai JiaoTong University, 535 Fahua Zhen Rd, Shanghai 200052, China;dSchool of Business, Renmin University of China, Beijing, China |
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| Abstract: | Examining Chinese publicly traded firms from 2002 to 2005, we find managerial overconfidence to be positively correlated with the rate of firm expansion. In particular, overconfident managers tend to internally expand firms in an aggressive manner. We also find a negative, though not statistically significant, relationship between managerial overconfidence and M&A activity. Lastly, we examine the relationship between managerial overconfidence and firm performance, finding that managerial overconfidence decreases firm profitability due to overinvestment. |
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| Keywords: | JEL classification: G34 |
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