Investigating the Effect of Managerial Entrenchment on Bias Overconfidence in Companies Listed in Tehran Stock Exchange

Document Type : Original Article

Authors

1 Department of Accounting, Qeshm Branch, Islamic Azad University, Qeshm, Iran

2 Associate Professor, Department of Accounting, Science and Research Branch, Islamic Azad University, Tehran, Iran

3 Assistant Professor, Department of Accounting, Qeshm Branch, Islamic Azad University, Qeshm, Iran

4 Associate Professor of Accounting, Science and Research Branch, Islamic Azad University, Tehran, Iran

Abstract

Tenured And Possessive Behavioral words are in the area of financial theories that is in line with the theory of representation, it seeks to narrow the gap of interest between shareholders and investors and guide the company's decisions to maximize shareholder interest, it seeks to narrow the gap of interest between shareholders and investors and guide the company's decisions to maximize shareholder interest. The purpose of this research is the effect of managerial entrenchment of bias overconfidence in companies listed in Tehran Stock Exchange. In this study, 111 Tehran Stock Exchange companies were studied in the period of 2013 to 2017. In this research, in order to measure the managerial entrenchment three criteria were used CEO tenure; Managerial ownership and DUAL And bias overconfidence were measured by two criteria overconfidence-excess capacity and excess debt capacity investment. The results showed a significant positive effect managerial entrenchment On Both overconfidence measure of excess capacity and excess debt capacity investment.

Keywords

References

  • Ahmed, A. S. & Duellman, S, (2013). Managerial Overconfidence and Accounting Conservatism", Journal of Accounting Research, 51 (1): 1-30
  • Bargeron, L., Lehn, K., Zutter, C. (2010). Sarbanes-Oxley and corporate risk-taking, Journal of Accounting and Economics, 49(1): 34-52.
  • Bebchuk, L., Cohen, A., Ferrell, A., 2009. What matters in corporate governance? Rev. Finan. Stud. 22 (2), 783–827.
  • Ben-David, I., Graham, J. R., & Harvey, C. (2010). Managerial miscalibration (No. w16215). National Bureau of Economic Research.
  • Berger, P. G., Ofek, E., & Yermack, D. L. (1997). Managerial entrenchment and capital structure decisions. Journal of Finance, 52(4): 1411–1438.
  • Bryant-Kutcher, L., Yan Peng, E., Weber, D.P., 2013. Regulating the timing of disclosure: insights from the acceleration of 10-K filing deadlines. J. Account. Public Policy 32, 475–494.
  • Chen, T., Harford, J., & Lin, C. (2015). Do analysts matter for governance? Evidence from natural experiments. Journal of Financial Economics, 115(2): 383–410.
  • Cheng, M., Dhaliwal, D., Zhang, Y., 2013. Does investment efficiency improve after the disclosure of material weaknesses in internal control over financial reporting? Account. Econ. 56 (1): 1–18.
  • Claessens, S., Djankov, S., Fan, J.P.H., Lang, L.H.P., 2002. Disentangling the incentive and entrenchment effects of large shareholdings. J. Finan. 57 (6), 2741–2771.
  • Clarke, J. E., Ferris, S. P., Jayaraman, N., & Lee, J. (2006). Are analyst recommendations biased? Evidence from corporate bankruptcies. Journal of Financial and Quantitative Analysis, 41, 169–196.
  • De Miguel, A., Pindado, J., De La Torre, C., 2004. Ownership structure and firm value: new evidence from Spain. Strat. Manag. J. 25 (12), 1199–1207.
  • Deshmukh, S., Goel, A., Howe, K. (2013). CEO overconfidence and dividend policy. Finance intermediation, 22(3): 440-463.
  • Di Meo, F., García Lara, J, M., Surroca, J, A. (2017). Managerial entrenchment and earnings management, Journal of Accounting and Public Policy 36 (2017) 399–414.
  • Ebrahimi, K., Sarbazi Azad, S. (2017). Investigating the Effect of Managerial Overconfidence and Accrual-based Earnings Management. Asset Management and Financing, 5(3): 105-116. doi: 10.22108/amf.2017.21190 (In Persian)
  • Fairchild, R. J. (2005). The effect of managerial overconfidence, asymmetric information, and moral hazard on CEO Turnover decisions. ICFAI Journal of behavioral finance, 2, 46-68.
  • Fredrickson, J.W., Hambrick, D.C., Baumrin, S., 1988. A model of CEO dismissal. Acad. Manage. Rev. 13 (2), 255–270.
  • Golkhandan, A. (2017). Threshold Effect of Managerial Ownership on Firm Value: Again Test by using the PSTR Model. Management Accounting, 10(34), 85-98. (In Persian)
  • Gompers, P., Ishii, J., Metrick, A., 2003. Corporate governance and equity prices. Q. J. Econ. 118 (1), 107–156.
  • Hajiebrahimi, M., Eskandar, H. (2019). Managerial Overconfidence Effects on Risk-Taking and Performance. Empirical Research in Accounting, 8(3): 340-365. doi: 10.22051/jera.2018.17046.1770 (In Persian)
  • Hasani Alghar, M., Rahimian, N. (2018). The Effect of Managerial Overconfidence on Debt Maturity Structure in Listed Companies in Tehran Stock Exchange. Asset Management and Financing, 6(1): 89-106. doi: 10.22108/amf.2017.21350 (In Persian)
  • Hong, H., & Kubik, J. (2003). Analyzing the analysts: Career concerns and biased earnings forecasts. Journal of Finance, 58(1): 313–351.
  • Jensen, M.C., Ruback, R. , 1983. The market for corporate control: the scientific evidence. J. Finan. Econ. 11 (1–4), 5–50.
  • Ji, Sh., Mauer, D, C., Zhang, Y. (2019). Managerial entrenchment and capital structure: The effect of diversification, Journal of Corporate Finance, https://doi.org/10.1016/j.jcorpfin.2019.101505
  • Jiraporn, P., Chintrakarm, P., Kim, Y, S. (2014). Analyst following, staggered boards, and managerial entrenchment, Journal of Banking & Finance, 36(6): 3091-3100.
  • Karami, Gh., Akhondi, O. (2017). Corporate Life Cycle and Cost of Equity Capital. Empirical Studies in Financial Accounting, 13(52), 37-60. doi: 10.22054/qjma.2017.7712 (In Persian)
  • Koerniadi, H., Krishnamurti, Ch., Tourani-Rad, A. (2014). Corporate governance and risk-taking in New Zealand, International Journal of Managerial Finance, 10(4): 494-510
  • Kolasinski, A., & Kothari, S. P. (2008). Investment banking and analyst objectivity: Evidence from analysts affiliated with M&A advisors. Journal of Financial and Quantitative Analysis, 43(2): 817–842.
  • Kolasinski, A.C. & Li, X, (2013). Can Strong Boards and Trading their Own Firm‘s Stock Help CEOs Make Better Decisions? Evidence from Acquisitions by Overconfident CEOs", Journal of Financial and Quantitative Analysis, 48(11): 1173–1206.
  • Larcker, D.F., Richardson, S.A., Tuna, I. Corporate governance, accounting outcomes, and organizational performance. Account. Rev. 82 (4), 963–1008.
  • Malmendier, U., Tate, G. (2015). Behavioral CEOs: The Role of Managerial Overconfidence, Journal of Economic Perspectives, 29(4): 37-60.
  • Malmendier, Ulrike, and Geoffrey A. Tate and Jon Yan, 2011, Overconfidence and early-life experiences: The effect of managerial traits on corporate financial policies, Journal of Finance 66, 1687-1733.
  • Marouan, K. (2015). Corporate Board Characteristics, Managerial Entrenchment and Diversification Strategy: Evidence from Tunisian Context, International Journal of Business and Management; 10 (7): 18 195.
  • Matthew, P. G., & Yildirim, H. S. (2015). Does director affiliation lead to analyst bias? Applied Economics, 47, 272–287.
  • Merani, S., Taheri, M. (2018). Managerial Overconfidence and Earning Forecast Errors. Empirical Research in Accounting, 7(2), 147-164. doi: 10.22051/jera.2017.7386.1072 (In Persian)
  • Mohammadi, A., Khodabandehlu, N. (2019). The effect of cash holding adjustments on managerial entrenchment. Management Accounting, 12(41), 185-196. (In Persian)
  • Morck, R., Shleifer, A., Vishny, R.W., 1988. Management ownership and market valuation: an empirical analysis. J. Finan. Econ. 20, 293–315.
  • Nazemi, A., Momtaziyan, A., Salehiniya, M. (2014). The Relationship between Corporate Governance and Efficiency of Inventory Management (Evidence from Tehran Stock Exchange). Empirical Studies in Financial Accounting, 11(42), 157-184. (In Persian)
  • Pound, J., 1987. The effects of antitakeover amendments on takeover activity: some direct evidence. J. Law Econ. 30 (2), 353–367.
  • Roger, T., Roger, P., Schatt, A. (2018). Behavioral bias in number processing: Evidence from analysts’ expectations, Journal of Economic Behavior & Organization, 149(3): 315-331.
  • Scherand, C. M. & Zechman, S. L, (2011). Executive Overconfidence and the Slippery Slope to Financial Misreporting, Journal of Accounting and Economics, 53(1-2): 311–329.
  • Shen, W., 2003. The dynamics of the CEO-board relationship: an evolutionary perspective. Acad. Manage. Rev. 28 (3), 466–476
  • Shleifer, A., & Vishny, R. W. (1989). Management Entrenchment: The Case of Manager-Specific Investments. Journal of Financial Economics, 25 (1): 123-140
  • Shleifer, A., Vishny, R.W., 1989. Management entrenchment. The case of manager-specific investments. J. Finan. Econ. 25 (1), 123–139.
  • Stein, J.C., 1989. Efficient capital markets, inefficient firms: a model of myopic corporate behavior. Q. J. Econ. 104 (4), 655–669
  • Stickel, S. E. (1992). Reputation and performance among security analysts. Journal of Finance, 47(2): 1811–1836
  • Taghizadeh Khanqah, V., Zeinali, M. (2017). The Effect of the Board Characteristics and Management Entrenchment on Firm Diversification Strategy. Financial Management Strategy, 5(1), 135-157. doi: 10.22051/jfm.2017.11516.1139 (In Persian)
  • Tavosi, J., Tavosi, J., Kamalian, A. (2018). Misevaluation and Behavioral Biases in the Tehran stock exchange. , 9(36): 273-293. (In Persian)
  • Tirole, J. (2005). The theory of corporate finance. Princeton University Press.
  • Wang, H. (2011). Managerial entrenchment, equity payout and capital structure, Journal of Banking & Finance, 35(3): 36–50.

Files

Share

How to cite

Statistics