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Managerial overconfidence, inefficient investment and stock price crash risk

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  • Li, Xin
  • Zhang, Qian
  • Fan, Zhong Ren

Abstract

Utilizing data from China's Shanghai and Shenzhen A-share listed firms (2012–2023), this study examines the effect of managerial overconfidence on stock price crash risk and its underlying mechanisms. Empirical evidence demonstrates that managerial overconfidence significantly elevates firms' future crash risk, with findings maintaining robustness after addressing endogeneity concerns. Subsequent analyses reveal that overconfident managers exhibit heightened tendencies toward irrational investment choices, thereby amplifying corporate risk exposure. Heterogeneity tests indicate a moderating role of independent director systems in this relationship.

Suggested Citation

  • Li, Xin & Zhang, Qian & Fan, Zhong Ren, 2025. "Managerial overconfidence, inefficient investment and stock price crash risk," Finance Research Letters, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:finlet:v:83:y:2025:i:c:s1544612325009444
    DOI: 10.1016/j.frl.2025.107685
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    References listed on IDEAS

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