Managerial Overconfidence and Investment Decision: Empirical Validation in the Tunisian Context

Nowadays and especially after the revolution and the troubles that Tunisia has witnessed, the investment phenomenon has been affected and remains inefficient. Indeed this inefficiency is due to an excessive investment behavior. However, this issue has been discussed under the influence of behavioral finance. We explore that the manager’s overconfidence can explain his behavior when it comes to business investment. The objective of this investigation is to examine the effect of managers' personal characteristics, namely overconfidence, on the investment decision of 45 Tunisian listed companies from 2009 to 2018. We construct a proxy made up of both the remuneration of the directors and his decision-making power to measure the excess of managerial confidence and we use the Richardson model to measure the volume of investment. Our empirical results give the following conclusion: A positive and significant relationship between the manager’s overconfidence and the investment volume of listed Tunisian companies.