The effect of managers’ overconfidence based on investment and capital expenditure on risk indexes and capital productivity

Overconfidence is the most obvious bias at the micro level of behavioral finance. This research studies the effect of manager's overconfidence based on capital expenditure and investment on risk indexes (stock returns deviation and operating cash flow deviation) and capital productivity in the listed companies in Tehran Stock Exchange. In this research, 132 companies were surveyed during 2012-2017. In order to test the hypotheses, the panel regression model has been used. The research findings show that manager’s overconfidence based on capital expenditure does not have any significant effect on stock returns. Rather, overconfidence based on investment has a significant direct effect on stock returns deviation. It means that overconfident managers meet risk and invest on risky projects .Themanager's overconfidence (based on capital expenditure and investment) does not have any significant effect on operating cash flow deviation and capital productivity.