“One person’s decision” or “collective voting”: Evidence of overconfident investing in Chinese listed companies

• Published in: The North American journal of economics and finance 2021-07, Vol.57, p.101393, Article 101393
• Main Authors: Liang, Chao, Liu, Bai, Weng, Yin-Che
• Format: Article
• Language: English
• Subjects: Board of directors; Chairperson; Decision-making mechanism; Investment-cash flow sensitivity; Overconfidence
• ISSN: 1062-9408; 1879-0860
• DOI: 10.1016/j.najef.2021.101393

•The board’ overconfidence leads to increased investment–cash flow sensitivity.•The increased investment–cash sensitivity is driven by state-controlled companies.•The influence of the board exists only if the chairperson is overconfident.•The investment distortion may be alleviated by supervising the chairperson. This study explores the collective voting of Chinese listed companies by examining whether the overconfidence of the board chairperson could affect the relationship between overconfidence and investment–cash flow sensitivity by the board of directors. On average, the board of directors’ overconfidence leads to increased investment–cash flow sensitivity. However, this influence is driven by state-controlled listed companies only if the chairperson is overconfident. The results suggest that the chairperson’s overconfidence may impact the relationship between the board of directors’ overconfidence and investment–cash flow sensitivity. Furthermore, the investment distortion due to the board’s overconfidence behavior may be alleviated by supervising the chairperson.