Impact of Institutional Ownership on the Relationship between Managers` Overconfidence and Financial Leverage of the Companies Listed in the Tehran Stock Exchange

The capital structure and financing method and accordingly the factors affecting them are issues that have always been important for companies and stakeholders. The purpose of this paper is to investigate the impact of managers' overconfidence on corporate leverage and the moderating effect of institutional ownership on the relationship between managers' overconfidence and corporate leverage.

The study used a sample of 151 companies listed in the Tehran Stock Exchange for the period 2008-2017. In order to test the research hypotheses, multiple regression was used.

The results show that the managers' overconfidence and institutional ownership have a positive and significant impact on the leverage. In addition, the evidence shows that institutional ownership has a negative and significant impact on the relationship between managers' overconfidence and corporate leverage.

Managers who are optimistic about the future of the company, while feeling that their stock will not be properly valued by the market due to their optimism, they will seek financing through borrowing when needed. Companies also have different potential opportunities for financing due to the composition of their capital structure. Some companies are more likely to attract more foreign resources than political firms with less size and credibility due to their political influence, their size and credibility. In addition, with the increase in institutional ownership due to their active oversight, manager decisions will be made to improve company performance and avoid decisions that compromise company performance.