The mediating role of capital structure on relationship between managers' overconfidence and company's efficiency: with an emphasis on window analysis method

One of the most important decisions of company managers is the one about combining and how to finance companies, that plays an important role in company's operation and efficiency. Decisions of financing can be affected by different factors. One of these factors is manager's personality trait. The main purpose in this article is to study the effects of managers' overconfidence on company's efficiency with considering the relevancy of intermediacy capital structure.

Statistical population in this research is the accepted companies in Tehran's Stock Exchange and its statistical sample includes 229 company data in a period of 6 years (2016-2020). Sampling method is systematic removal and the used method for sample estimation is firm multivariate regression.

The study's results have shown that in relevancy, overconfidence and company's efficiency with mediation of capital structure, there is no strong relation between manager's overconfidence and company's efficiency, and there is a strong reverse relation between capital structure and company's efficiency. This issue represents the complete mediation role of capital structure in this study, in other word all the effects of manager's overconfidence are applied on company's inefficiency by capital structure. 

Overconfidence makes managers not to make logical decisions and interpret their risk level properly. That's why the overconfident managers may use more debts in capital structure, despite the risk of financing from out of company. This issue makes the company's financial costs to grow and company's efficiency to descend