The Investigating the Economic Consequences of Managers’ Overconfidence in Exchange Companies

The aim of this research is to investigate the economic consequences of managers’ overconfidence in companies listed in Tehran Stock Exchange during 2006-2016. For doing the study, 77 companies were selected as statistical sample. The pooled/paned regression models were applied to analyze of research data in econometric software EViews 9. In the study, dummy variable of Capital Expenditure (CAPEX) was used to measure of the managers’ overconfidence. Also, to calculate of the economic consequences of managers’ overconfidence such as reducing the quality of financial reporting, from the earnings management criterion, increasing the audit expenses, from the natural logarithmic criterion of audit fees, devaluation of the company’s market value, from the index of market value to book value, and increasing financial distress, from the Kurdestani and Tatli indigenous model were exerted. Financial leverage, company size, return on assets, and cash flow from operating were applied as other effective factors on the economic consequences of managers’ overconfidence, too. Findings indicate that the capital expenditures as index of the managers’ overconfidence have a positive and significant effect on the earnings management, as well as on the increase of audit expenses resulting from the decrease in the quality of financial reporting, and have a negative and significant effect on the decrease in the ratio of market value to book value following the reduction of the quality of financial reporting, too. However, the financial distress of companies is independent from the managers’ overconfidence and the reduction in the quality of financial reporting following it.