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Social ties, managerial overconfidence, and investment efficiency

Author

Listed:
  • Kang, Yong Joo
  • Lee, Ho-Young
  • Park, Hyun-Young
  • Park, Ju Hyoung

Abstract

This study examines the association between the social ties among board members and investment efficiency and whether managerial overconfidence aggravates this association. We find that social ties among directors are negatively associated with investment efficiency and managerial overconfidence aggravates this association. These results suggest that social ties between inside and outside directors weaken board independence, which ultimately has a negative impact on optimal investment decision-making. In addition, stakeholders must effectively monitor managers who are overconfident when board members are socially tied.

Suggested Citation

  • Kang, Yong Joo & Lee, Ho-Young & Park, Hyun-Young & Park, Ju Hyoung, 2022. "Social ties, managerial overconfidence, and investment efficiency," Finance Research Letters, Elsevier, vol. 46(PA).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pa:s1544612321003330
    DOI: 10.1016/j.frl.2021.102300
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    2. Gong, Cynthia M. & Gong, Pu & Jiang, Mengting, 2023. "Corporate financialization and investment efficiency: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).

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    More about this item

    Keywords

    Board characteristics; Social ties; Investment efficiency; Managerial overconfidence;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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