Abstract:

This research aims to examine the influence of managerial overconfidence on corporate investment using a sample of 230 nonfinancial companies listed in IDX between 20082018. Data collected from Thompson - Reuters (Eikon) and company’s audited financial reports.  Managerial overconfidence’s research rarely conducted in Indonesia. Most investment literature linked to investment decision with company’s condition such as cash flow, financial constraint and agency problem. Therefore, this research focus on subject of investment decision maker. Managerial overconfidence plays a substantial role in corporate decisions, specifically investment decisions. According to Ben – David et.al (2013), company predictions are subject to representative biases. These representative biases lead to distortions in decision making. Overconfident managers tend to overestimate their ability and return on investment. Therefore, companies with overconfident managers most likely have higher corporate investment levels.  Managerial overconfidence is measured by OC_FIRM4, OC_FIIRM 5, and OC_SCALA indices. Cashflow, opportunity growth, company size and corporate governance are used as variable controls. Cashflow as internal financing are controllable by managers. Overconfident managers tend to associated external financing with unduly cost; therefore, the more cashflow the higher investment levels will be. Opportunity growth in this research is represented by approximate Q. Companies with Q more than 1 indicate company has incentive to execute investment. Investment decisions are also determined by company size; small companies tend to have higher investment levels to grow business. From an agency perspective, corporate governance in companies has the function to monitor agents on behalf of the principal. Corporate governance control managers to make decision related to a principal’s interest. Therefore, corporate governance has influence on investment decisions. All data for this study was generated using panel regression in Eviews. This research found that managerial overconfidence has a positive influence on corporate investment. OC_FIRM4 and OC_SCALA has a significance of 0.01 meanwhile OC_FIRM5 has a 0.10 significance. As predicted, cashflow and opportunity growth has a positive influence on corporate investment; company size has a negative influence on corporate investment. Corporate governance in this research uses a ratio of independent commissioners compared to total commissioners. This ratio has inconsistent significance on corporate investment.