Asia-Pacific Journal of Business (아태비즈니스연구)

KNU The Institute of Management & Economy Research (강원대학교 경영경제연구소)
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Impact of managerial overconfidence on Valuation Error

경영자 과신성향이 가치평가오류에 미치는 영향

  • Joon-Seok Lee (Department of Accounting and Taxation, Yeungnam University) ;
  • Myung-Gun Lee (Department of Accounting and Taxation, Yeungnam University)
  • 이준석 (영남대학교 회계세무학과) ;
  • 이명건 (영남대학교 회계세무학과)
  • Received : 2024.08.30
  • Accepted : 2024.09.25
  • Published : 2024.09.30
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Abstract

Purpose - This study was a study on managerial overconfidence and valuation errors to verify how the increase in managerial overconfidence affects valuation errors. Design/methodology/approach - Managerial overconfidence propensity refers to managers having excessive confidence in their position or ability (Hayward and Hambrick, 1997; Park Jin-hee, 2021) and was measured according to Schrand and Zechman (2012). Valuation error refers to a situation where a company's actual stock price differs from its intrinsic value as a result of numerous information asymmetries in the market, and was measured using the measurement method in Rhodes-Kropf et al (2005) study. The sample of this study used companies listed in the capital market for a total of 12 years from 2011 to 2022. Findings - As a result of the verification, there was a significant positive (+) relationship between managerial overconfidence and valuation errors, and this relationship was alleviated as the percentage of foreign shareholders shares or the number of financial analysts they followed increased. It can be interpreted that when the information demands of investors, such as foreign shareholders and financial analysts, increase significantly, managers provide more information to meet investors demands, thereby reducing information asymmetry and leading to a decrease in valuation errors.. Research implications or Originality - Previous studies on overconfidence, among the cognitive characteristics of individual managers, have yielded mixed results. In this study, we conducted a direct empirical analysis of managerial overconfidence using a measure called valuation error, which evaluates numerous information asymmetries in the capital market. This is expected to help stakeholders in the capital market understand the characteristics of managers and recognize their importance. It can also be used as a basis for establishing policies to reduce valuation errors.

Keywords

References

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