41st International Academic Conference, Venice

IMPACT OF CEO’S OVERCONFIDENCE ON CORPORATE FINANCING DECISION: IN REFERENCE TO THE MEDIATING ROLE OF RISK PERCEPTION IN PAKISTAN CAPITAL MARKET

IRAM NAZ

Abstract:

The purpose of this paper is to investigate the impact of managerial overconfidence on corporate financing decision and the mediating role of risk perception on the relationship between CEO/CFO overconfidence and corporate financing decision. This study indicates that psychological factors affects the decision making of top management. So this research explores overconfidence bias effect on the corporate financing decision with the mediating role of risk perception. Because psychological factors are basic factors that affects the decision making of human beings. Research designed for the research work is causal and primary data has been used to test the results of this study. Among all the companies listed in Pakistan stock exchange researcher has selected CEO’s or CFO’s of 200 companies as a sample. E-Questionnaire has been used to collect the required data and LinkedIn and other mailing sources are used to collect the required information. Simple linear regression and correlation are employed to test the model and Baron and Kenny, (1986) four step mediation is employed to test the mediation effect of risk perception. Results of this study conclude that there is a significant positive relationship between overconfidence of CEO and leverage and there is significant negative relationship between CEO overconfidence and risk perception. But there is an insignificant result for mediating role of risk perception between CEO overconfidence and Leverage.

Keywords: CEO overconfidence, risk perception, corporate financing decision, Leverage.