The Effect Of Managerial Overconfidence On Leverage

Abstract

In this paper, we examine the relationship between managerial overconfidence and leverage. Analyzing a sample of firms listed on Korean Stock Market during the period from 1985 to 2007, we use the average of the past 12 months Business Survey Index (BSI) from Bank of Korea as proxy measure of managerial overconfidence. We find that managers tend to issue more debts when they have overconfidence and this result is consistent with Oliver (2009) and Yu et al. (2006).