Research on Property Rights, Revenue Transparency and Equity Financing Costs——Based on the Perspective of CEO Overconfidence

Jin Luo (Business School, Lingnan Normal University, Zhanjiang, Guangdong, 524048, China)

Abstract


This paper takes the Chinese listed company with the equity refinancing qualification from 2012 to 2013 as the research object, and uses the residual revenue model to calculate the equity financing cost. This paper discusses the impact of the overconfidence of executives on the equity financing cost and its impact mechanism. The unique institutional background examines the differences in property rights characteristics. The research found that: (1) executive overconfidence has a negative impact on the cost of equity financing, executives tend to be overconfident, the higher the equity financing cost of the company; (2) the overconfidence of executives to state-owned enterprises compared to private enterprises The negative impact of financing costs is more significant; (3) in addition, this paper also examines the potential impact mechanism of executive overconfidence on the cost of equity financing. The quality of information disclosure and the risk of investor prediction have a mediating effect on the impact of executive overconfidence on equity financing costs.


Keywords


CEO overconfidence; Accounting information quality; Revenue transparency; Earning Smoothness; Equity financing costs

Full Text:

PDF

References


[1]Cooper A.C,Carolyn Y.Woo,William C.Dunkelberg. Entrepreneurs Perceived Chances for Success[J].Journal of Business Venturing,1988,2(1):97-108.

[2]Russo J.,Schoemaker P.. Managing Overconfidence[J]. Sloan Management Review, 1992, 33(2): 7-17.

[3]Baker M.,Ruback R.,Wurgler J.. Behavioral corporate finance: A survey[C]. In The Handbook of Corporate Finance: Empirical Corporate Finance edited by Eckbo,E., New York: Elsevier /North Holland,2006:145-186.

[4]Malmendier U.,Tate G..CEO Overconfidence and Corporate Investment[J]. Journal of Finance, 2005, (6):2661-2700.

[5]Malmendier U.,Tate G..Who Makes Acquisitions? CEO Overconfidence and the Market’s Reaction[J]. Journal of Financial Economics, 2008, 89(1):20-43.

[6]Ying Hao, Xing Liu, Chaonan Lin. An Empirical Study on Overconfidence and Investment Decisions of Top Managers in China’s Listed Companies[J]. China Management Science, 2005, (5):142-148. (in Chinese)

[7]Minggui Yu, Xinping Xia, Zhensong Zou. Manager Overconfidence and Corporate Radical Debt Behavior[J].Management World,2006,(8):104-112. (in Chinese)

[8]Xia Wang, Min Zhang, Fusheng Yu. Managerial Overconfidence and Alienation of Corporate Investment Behavior-Evidence from China’s Securities Market[J].Nankai Management Review, 2008,11(2):77-83. (in Chinese)

[9]Fuxiu Jiang, Min Zhang, Zhengfei Lu, Caidong Chen. Manager overconfidence, corporate expansion and financial distress[J]. Economic Research, 2009, (1):131-143. (in Chinese)

[10]Fusheng Yu, Sheng Zhang, Yan Li. Overconfidence of Managers and Cost of Equity Capital: Empirical Evidence from China’s Securities Market[J]. Audit and Economic Research, 2011(1):72-80. (in Chinese)

[11]Bhattacharya U.,Daouk H.,Welker M.. The World Price of Earnings Opacity[J]. The Accounting Review, 2003(78):641-678.

[12]Barry C. B.,Brown S. J.. Differential Information and the Small Firm Effect[J]. Journal of Financial Economics, 1984, 13(2):283-295.

[13]Diamond.D. ,Verrecchia R. Disclosure, Liquidity, and the Cost of Capital[J]. Journal of Finance, 1991, 46(4):1325-1359.

[14]Kim O., Verrecchia R. Market Liquidity and Volume around Earnings Announce ments[J].Journal of Accounting and Economics,1994,(17):41-68.

[15]Botosan C.A. Disclosure Level and the Cost of Equity Capital[J].The Accounting Review, 1997, 72(3):323-350.

[16]Botosan C. A.,Plumlee M.. A Re-examination of Disclosure Level and the Expected Cost of Equity Capital[J].Journal of Accounting Research, 2002(40):21-40.

[17]Wei Wang, Gaofeng Jiang. Information Disclosure, Transparency and Capital Costs[J]. Economic Research, 2004, (7):107-114. (in Chinese)

[18]Ying Zeng, Zhengfei Lu. Quality of Information Disclosure and Equity Financing Costs[J]. Economic Research, 2006, (2):69-79. (in Chinese)

[19]Juanjuan Huang, Wei Xiao. Information Disclosure, Transparency of Income and Cost of Equity Capital[J]. China Accounting Review, 2006, 4(1):69-84. (in Chinese)

[20]Hribar P.,Yang H..Does CEO Overconfidence Affect Management Forecasting and Subsequent Earnings Management?[DB/OL].SSRN Working Paper, 2010.

[21]Leuz C.,D.Nanda,P.D.Wysocki.Earnings management and investor protection: an international comparison[J].Journal of Financial Economics, 2003(69):505-527.

[22]Yuetang Wang, Liangliang Wang, Caiping Gong. Income Tax Reform, Earnings Management and Its Economic Consequences[J]. Economic Research, 2009, (3): 86-98. (in Chinese)

[23]Myers S.Determinants of corporate borrowing[J].Journal of Financial Economics, 1977,(5):141-175.

[24]Tim A.,Vidhan K.,Goya.The investment opportunity set and its proxy variables[J]. Journal of Financial Research, 2008(31):41-63.

[25]Myers,James N.,Linda A. Myers,Douglas J.Skinner.Earnings momentum and earnings management[J].Journal of Accounting,Auditing and Finance, 2007, 22(2): 249-284.

[26]Gebhardt, W.,C.Lee, B.Swaminathan. Toward an Implied Cost of Capital[J]. Journal of Accounting Research, 2001(39):135-176.

[27]Kangtao Ye, Zhengfei Lu. Analysis of Factors Affecting Equity Financing Cost of Chinese Listed Companies[J].Management World, 2004(5):127-142. (In Chinese)

[28]Modigliani F.,Miller M.H.The cost of capital, corporation finance and the theory of investment[J].The American Economic Review, 1958(3):261-297.



DOI: https://doi.org/10.30564/jbar.v1i1.454

Refbacks

  • There are currently no refbacks.
Copyright © 2019 jin luo Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.