Probe - Accounting, Auditing and Taxation

The Impact of Board Overconfidence on the Risk of Stock Price Crash

Haiqin Zhang

Nanjing Normal University of Special Education

DOI: https://doi.org/10.59429/paat.v6i3.7104

Keywords: Stock price crash risk; Overconfidence; Better than average; Overoptimism; Supervision mechanism

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Abstract

From the perspective of behavioral finance, China’s A-share listed companies in Shenzhen and Shanghai from 2010 to 2022 are taken as the research objects in this paper, and the influence of different sources, degrees and types of board overconfidence on the risk of stock price crash is empirically test. Results show that different sources, degrees and types of board overconfidence have disparate impact on stock price crash risk. In other words, as long as the board of directors has the psychological deviation, and when the degree of overconfidence from any one source is very strong, its overconfidence will significantly increase the occurrence of stock price crash risk; while when the degree of overconfidence from both sources are weak, it will not exacerbate, but inhibit the risk of a stock price crash. Further research finds that the corporate supervision mechanism has an inhibitory effect on the stock price crash risk caused by different types of overconfidence, but most of them are not significant, indicating that the governance effect of the corporate supervision mechanism is limited. The research of this paper can provide a reference for China to establish a perfect capital market provision system and regulatory reform.

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