Managerial Overconfidence, Equity Pledge and Interest Transfer—A Case of LETV

CEO is the direction of an enterprise, and his psychology is an important factor affecting the financing of the enterprise. Overconfidence is the most typical and stable psychological performance of the CEOs. The paper uses a single case study to explore the impact of Managerial Overconfidence on financing decision-making. Taking the expansion pace and financing situation since the listing of LETV as the research object, the paper tries to explore the influence of managers' overconfidence on financing decision-making by using event study and draws two conclusions. Firstly, over-confident managers prefer diversified investments, especially in riskier new industries. Secondly, when managers are controlling shareholders, they will invest in other industries in order to create their own imperial group to pledge the equity of listed companies. In view of the above problems, the paper puts forward two suggestions. On the one hand, the state should establish a sound supervision mechanism of major shareholders and management to prevent the transfer of enterprise interests. On the other hand, establish a professional independent director institution to enhance the status of independent directors in company management.

Overconfidence; Equity Pledge; Interest Transmission

WU Yongli. Managerial Overconfidence, Equity Pledge and Interest Transfer—A Case of LETV. 2019 Asia-Pacific Forum on Economic and Social Development (APFESD 2019). 2019, Vol.2: 116-121.