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The contagion effect of overconfidence in business group

Author

Listed:
  • Gao, Peng
  • Vochozka, Marek
  • Niu, Siqian

Abstract

Overconfidence is a common psychological phenomenon among individuals. Business groups are important participants in China. This paper combines these two important topics by studying the effects of overconfidence contagion effects in the business group. Based on the 2007–2019 Shanghai and Shenzhen A-share group holding listed companies' hand-collected samples, this paper proves that if one group member shows overconfidence, the other members are more likely to be overconfidence in the next year, proving that there is overconfidence contagion effect within the business group. Further analyses find that the sociological theory, the psychological theory, and the business group theory can explain the mechanism of the contagion effect of overconfidence. Besides, this paper also finds that from macro to micro, there are many factors may influence this effect. Our findings not only enrich research on contagion effects in the business group, but also provide empirical evidence that why overconfidence has become a widespread psychological phenomenon.

Suggested Citation

  • Gao, Peng & Vochozka, Marek & Niu, Siqian, 2024. "The contagion effect of overconfidence in business group," International Review of Financial Analysis, Elsevier, vol. 91(C).
    • Handle: RePEc:eee:finana:v:91:y:2024:i:c:s1057521923005057
    DOI: 10.1016/j.irfa.2023.102989
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