Vivian, A and Xu, B orcid.org/0000-0003-3512-5834 (2018) Time-varying managerial overconfidence and pecking order preference. Review of Quantitative Finance and Accounting, 50 (3). pp. 799-835. ISSN 0924-865X
Abstract
This paper examines whether managerial overconfidence enhances or weakens pecking order preference. We construct time-varying managerial words-based (i.e. tone of Chairman’s Statement) and action-based (i.e. firm investment and directors’ trading) overconfidence measures. Both optimistic tone and industry-adjusted investment have significant and negative impacts on the pecking order coefficient in the Shyam-Sunder and Myers (J Financ Econ 51:219–244, 1999) regression framework. Overconfident managers tend to use more equity than debt to finance deficits. This new evidence is consistent with the proposition that overconfident managers who underestimate the riskiness of future earnings believe that their debt (equity) is undervalued (overvalued) and therefore prefer equity to debt financing. Thus, managerial overconfidence can lead to a reverse pecking order preference. We also find that managerial overconfidence significantly weakens pecking order preference especially in firms with high earnings volatility and small firms.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © Springer Science+Business Media, LLC 2017. The final publication is available at Springer via http://dx.doi.org/10.1007/s11156-017-0647-8 |
Keywords: | Managerial overconfidence; Pecking order preference; Optimistic tone |
Dates: |
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Institution: | The University of Leeds |
Academic Units: | The University of Leeds > Faculty of Business (Leeds) > Accounting & Finance Division (LUBS) (Leeds) |
Depositing User: | Symplectic Publications |
Date Deposited: | 26 Jul 2017 10:26 |
Last Modified: | 20 Jul 2018 00:38 |
Status: | Published |
Publisher: | Springer Verlag |
Identification Number: | 10.1007/s11156-017-0647-8 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:119518 |