Abstract:

Purpose:

This study aimed to investigate the effect of overconfidence of managers and information asymmetry resulting from that, on risk of falling of stock price. For this purpose, overconfidence of managers has been measured based on three criteria including: accuracy of profit prediction by managers, surplus of capital expenditures and the remainder of the company’s growth model; and its impact on three indices of risk of falling of stock price including: specific return of company’s stock, negative coefficient of skewness of the specific return and ratio of standard deviation of monthly specific return of company in months when the specific return is higher than the mean, to standard deviation of specific return in months lower than the mean was tested. Information asymmetry also was measured based on a composite index of five measures in accordance with the terms of Tehran Stock Exchange; and its effect on risk of falling of prices was measured in presence of overconfidence proxies of managers.

Method: This study has been done based on data released by the companies listed in Tehran Stock Exchange, in the period between 1389 and 1394 with a selected sample of 211 companies and 1266 year-companies. Testing of research hypotheses has been done using panel estimators in logistic regression models, panel model and generalized regression (EGLS).

Inference and Results: The results of testing the research hypotheses suggest that overconfidence of managers influences significantly on risk of falling of stock price based on all three indicators for measuring it. Also, overconfidence of managers impacts the relationship between information asymmetry and risk of falling of stock price and intensifies this relationship.

Originality and achievements: originality and innovation of this research is firstly attention to behavioral aspect of managers facing with investment decisions in companies and secondly, using of composite criteria in measuring this behavior. Its achievement is also offering a view in order for explaining managers’ behavior in order to prevent sudden fluctuations of stock price resulting from managers’ decisions and creating informational transparency in capital market.