Cognitive Shackles:From Consistency of Financial Performance to Corporate Over-investment——Evidence Based on China's Listed Companies

Abstract

Abstract:

This paper aims to study the influence of heuristic bias on corporation over-investment. Based on the data of China's listed companies during 2001 to 2012, we find:(1) higher level of overinvestment exist in the corporations with consistency of historical financial performance;(2) the level of overinvestment is positively related with the length of consistency period;(3) after peeling off the influence of self-attributionbias, the heuristic bias still affect the level of over-investment robustly;(4) the effects of consistency of financial performance information on over-investment exist in companies managed both by overconfident managers and rational ones.

Key words: consistency of financial performance information, heuristic bias, self-attribution bias, manager cognitive bias, overinvestment, inefficient investment

Zhong Ma, Xu Guanghua. Cognitive Shackles:From Consistency of Financial Performance to Corporate Over-investment——Evidence Based on China's Listed Companies[J]. , 2015, 27(11): 207-216.

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