The relationship between CEO's Overconfidence and Cost of Equity Capital
Sogand Zahedianfard, Malihe Alifari, Donya Ahadian Por Parvin
One of the important characteristics of a managers' personality is overconfidence. Managers are optimistic of their business unit earnings and cash flows and have a positive outlook on future risks and returns. This research examined Investors' perceptions of CEO's overconfidence as an evidence of costs of equity capital. Investors can perceive CEO overconfidence as a positive or negative attribute that negatively signals business risk and information leading to inappropriate investment decisions and positively reducing business risk and It is information that is beneficial to the company and such managers tend to invest in risky and innovative projects. To conduct this research, data of a five-year period was used to achieve the goals. The research time domain was during 2011-2015. Eviews software was used to estimate the statistics. Studies show that in Iran, despite the positive relationship between overconfidence and cost of equity, there is no significant relationship, and there is no linear and nonlinear relationship between overconfidence and cost of equity. There is information asymmetry in the Iranian capital market. That leads to poor reporting. In other words, the poor quality of reporting and the almost equal rate of financing costs of all securities companies make CEO's overconfidence not affected by equity costs.