Managerial Overconfidence, Internal Financing, and Investment Efficiency: Evidence from Tehran Stock Exchange (TSE) and Iran Fara Bourse Securities Exchange (IFB)

Overconfidence is one of the most common cognitive biases among managers and investors. Overconfident managers usually underestimate the risk of investments because of the illusion of control and make additional investments to continue expanding their business empire. In this study, the relationship between managerial overconfidence, internal financing, and investment efficiency is examined. This research is a type of post-event research and is based on the analysis of the observed data. The statistical sample included 148 companies listed on the Tehran Stock Exchange (TSE) and Iran Fara Bourse Securities Exchange (IFB) over 10 years (2008-2017). Data regression analysis, Panel data analysis, are used to determine the relationships. The results show that there is no positive and significant relationship between managerial overconfidence and internal financing. There is also a significant relationship between internal financing and investment efficiency, we concluded that managerial overconfidence has not got a significant effect on the relationship between internal financing and investment efficiency.