Effects of Overconfident Managers on the Capital Using Generalized Method of Moments

Abstract

The purpose of this research study is to investigate the effect of overconfident managers on capital structure. For this study, data from 221 companies listed on Tehran Stock Exchange during the years 2013 to 2017. And using GMM models, the data were analyzed. Also, we tested including influencing variables of tangible assets, profitability, return on assets and firm size as control variables. The results showed that over confidence managers and other control variables have a significant and positive impact on the capital structure of compagnies. These results indicate that as managers’ confidence increased coupled with an increase in assets, profitability and firm size, ratio of corporate debt also increased implying that companies borrowed through issuing bonds to finance more of their equity in the capital structure. This paper is one of few studies on the field of behavioral finance on Effects of overconfident managers on the capital structure using generalized method of moments.