Overconfidence and financial decision-making: a meta-analysis

Grežo, Matúš

doi:10.1108/rbf-01-2020-0020

Cited by 32 publications

(26 citation statements)

References 125 publications

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“…After the influential work of Modigliani and Miller (1958), the BF approach has revealed useful results in the process of solving decision makers' behaviors and thoughts. Grezo (2020) in this regard found the strong indirect effect of OVERCB than the direct effect.…”

Section: Manager's Capital Structure Decisions (Csds)mentioning

confidence: 73%

Behavioral Cost of Managerial Decisions Under Risk Perception and Culture: A Comparative Study Between the United States and Pakistan

2021

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The study is an attempt to find the reasons for biased behavior of overconfident managers while making financial decisions on behalf of shareholders. The study further seeks the ways to resolve the problems faced by firms due to such biased decision-making. For this purpose, quantitative research method is used to uncover the new information for better understanding of study. The comparative analysis has been done through survey-based data collected from executives/managers of firms listed on Pakistan Stock Exchange and New York Stock Exchange. The results indicate that overconfidence bias plays a significant role in managerial decisions for Pakistan compared with U.S. managers. This study applied mediation and moderation tests and found the significant mediating role of risk perception for overconfidence bias and manager decisions. The study further checked moderating role of cultural value, that is, the role of uncertainty avoidance between overconfidence bias of managers and risk perception. Hence, the role of cognitive biases and bounded rationality is undeniable for managerial decision-making and ultimate behavioral cost that firms have to pay due to undesired outcomes of situations. Consequently, this study has reached to extract the hidden facts and solutions to the observed issues for developed and emerging economy’s firms through cultural differences.

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Section: Manager's Capital Structure Decisions (Csds)mentioning

confidence: 73%

Behavioral Cost of Managerial Decisions Under Risk Perception and Culture: A Comparative Study Between the United States and Pakistan

2021

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“…In order to synthetize these multiple definitions, the psychological literature conceptualized overconfidence as an umbrella composed by three different conditions, namely overprecision, overplacement and overestimation (Grežo, 2021). In detail, overprecision is related to the “systematic underestimation of the variance of a relevant measure affecting performance (demand, costs, etc.…”

Section: Conceptual Backgroundmentioning

confidence: 99%

Decision-maker's overconfidence and international performance: the role of the adoption of intuitive practices

Musso

Francioni

Curina

et al. 2022

JSBED

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PurposeThe paper analyses the influence of the decision-makers' overconfidence on the intuitive practices' adoption, as well as on the international performance during international strategic decision-making processes (SDMPs) of small- and medium-sized enterprises (SMEs). Moreover, the study investigates the possible mediating effect of intuition on the relationship between overconfidence and international performance.Design/methodology/approachA semi-structured questionnaire based on a sample of 160 SMEs and a regression analysis have been employed.FindingsResults show a negative relationship between intuition and international performance and a positive one between overconfidence and international performance. Furthermore, a negative relation between overconfidence and intuition has been identified. Findings also highlight the mediating role of intuition in the relationship between overconfidence and international performance.Practical implicationsThe paper provides valuable implications related to the analysis of overconfidence as a critical decision-maker's character and intuition as a feature of the decision-making methodology. Moreover, the study offers indications for SMEs facing complex strategic decisions.Originality/valueThe paper adopts an original perspective by combining the SDMP analysis with that of international strategy within the SMEs context. Additionally, the study enriches the existing literature by (1) investigating overconfidence in the decision-making; (2) enhancing the examination of overconfidence and intuitive practices in the international SDMP; (3) deepening the research field focused on the identification of the intuitive processes' predictors that is still in its infancy.

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“…However, the results of the study found that the impact of negative media reports was actually minimal. However, Greo (2021) and Mundi and Kaur (2022) believe that the media does not have a unilateral impact on investment efficiency, but has both positive and negative impacts. Media reports can attract managers’ attention, improve investment prudence, and make more rational investments.…”

Section: Literature Reviewmentioning

confidence: 99%

“… Huang et al (2022) expanded the scope of enterprise managers from a single manager to the entire company management, and found that the two are still positively correlated. Greo (2021) and Mundi and Kaur (2022) pointed out that managers with overconfidence will be keen on enterprise expansion strategies and realize enterprise expansion by increasing investment in mergers and acquisitions, but the result will increase the possibility of companies falling into financial crisis. Blair et al (2022) refined the scope of investment and defined it as the investment in fixed assets by enterprises.…”

Section: Research Hypothesismentioning

confidence: 99%

Analysis of the influence of enterprise managers’ overconfidence on the overinvestment behavior of listed companies under the media reports

2022

Front. Psychol.

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At present, there is a common overinvestment behavior among listed companies in various countries, which seriously reduces the overall resource allocation efficiency of the market. With the rise of behavioral finance, it has become a new direction to study the influence of managers’ “irrational characteristics” on enterprise overinvestment. With the rapid rise of the media industry, media reporting, as an external governance mechanism, supplements the capital market supervision system and has a huge impact on the investment behavior of enterprises. How media reports affects overinvestment and whether it can curb overinvestment caused by managers’ overconfidence is still worthy of further study. This paper took 6,012 A-share listed companies from 2013 to 2021 as samples, and based on the perspective of “media reports,” studies the impact of managers’ overconfidence on overinvestment; explores whether positive and negative media reports have a moderating effect between overconfidence and overinvestment; studies the moderating effect of media reports under different marketization processes. Empirical conclusions: (1) Managers’ overconfidence will lead to overinvestment of enterprises. (2) Positive media reports will aggravate the overinvestment caused by managers’ overconfidence; negative reports can inhibit the overinvestment caused by managers’ overconfidence. (3) In regions with higher marketization, positive media reports play a more significant role in aggravating overconfidence and leading to overinvestment; in regions with lower marketization, negative reports play a stronger role in restraining overconfidence and overinvestment.

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Overconfidence and financial decision-making: a meta-analysis

Cited by 32 publications

References 125 publications

Behavioral Cost of Managerial Decisions Under Risk Perception and Culture: A Comparative Study Between the United States and Pakistan

Behavioral Cost of Managerial Decisions Under Risk Perception and Culture: A Comparative Study Between the United States and Pakistan

Decision-maker's overconfidence and international performance: the role of the adoption of intuitive practices

Analysis of the influence of enterprise managers’ overconfidence on the overinvestment behavior of listed companies under the media reports

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