The Impact of External Oversight Mechanisms on the Relationship between Managers' Overconfidence and Over-Investment (Case Study in the Pharmaceutical Industry)

One of the most important decisions for business unit managers to make is investment decisions. Investment is an essential component of any business unit's operations. Adoption of investment policies by managers has a significant role to play in risk and wealth creation for shareholders. One of the factors affecting the amount of investment a company has is the trust of managers. In this regard, the present study investigates the impact of external monitoring on the relationship between managers' overconfidence and over-investment of listed companies in Tehran Stock Exchange (pharmaceutical industry) over the period 2013-2016. For this purpose, using field survey and document analysis, the extracted data were tested and analyzed using descriptive statistics and logistic regression model. The results indicate that managers' overconfidence has a direct and significant relationship with overinvestment, which is moderated (reduced) by external supervision. That is, the existence of sound external oversight affects the decision making of investment opportunities by business managers based on their personal interests and minimizes harmful investments. .