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MINISTRY OF EDUCATION AND TRAINING
UNIVERSITY OF ECONOMICS HO CHI MINH CITY
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TRUONG DINH BAO LONG
RESEARCH ON CEO’s OVERCONFIDENT BEHAVIOR
AND FINANCIAL DECISIONS IN VIETNAM COMPANIES
Major: Finance – Banking
Major code: 93 40201
DOCTORAL THESIS SUMMARY
HOCHIMINH CITY – 2018
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The thesis is completed at:
University of Economics Ho Chi Minh City
Supervisor: Associate Professor. Ph.D Nguyen Ngoc Dinh
Contradicteur 1: …………………….……………………..
Contradicteur 2: ………………………..……………………
Contradicteur 3: ………………………………………………..
The thesis will be defensed in front of the Academic Council convened by:
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At: …… …../……/201…
This thesis can be found at the library:
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SOCIAL REPUBLIC OF VIETNAM
Independence – Freedom – Happiness
Ho Chi Minh City, 5th Oct. 2018
ABSTRACT OF THE THESIS
Thesis title: Research on CEO’s overconfident behavior and financial
decisions in Vietnam companies.
Major: Finance- Banking Code: 93 40201
PhD Student: Truong Dinh Bao Long Course: NCS2010
Supervisor: Associate Professor. PhD Nguyen Ngoc Dinh,
Keywords: Overconfidence, Financial Condition Index, Financial
Decisions, Regression Model, CEO (Chief Executive Officer).
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CHAPTER 1. INTRODUCTION TO THE APPROACH OF THE
THESIS
1.1. The necessity of the Thesis
Nowadays, in Vietnam, CEOs, who directly manage business activities, are often
struggled to make good decisions. Insufficient and inconsistent data, untransparent
market, asymmetric information are the main causes leading to biased CEOs’
decisions. This problem may become very serious and create agency cost for
stockholders, it indirectly reduces the value of the company. In other cases,
companies can be distressed and bankrupted if such problems are not solved
completely.
Although doing research on CEOs’ behaviors is very important in order to contribute
to the theoretical and empirical framework in making right decisions, it is only
implemented in the U.S market. Therefore, it is necessary to implement and conduct
a similar research in Vietnam market because the research can reveal a specific
relationship between behavioral psychology and financial theories.
In types of behavior which may affect business decisions, overconfidence is the most
featured and is measured almost accurately, so this point is fundamental to focus on
this kind of behavior rather than others. Most hypotheses, which are used in the thesis,
are based on the U.S market; however, some of them are reasoned and transformed
to reflect the core of the Vietnam market. In addition, the hypothesis test stage is also
used to accept or reject the hypotheses and make sure the robustness of the results. In
summary, the necessity of the thesis is to find out whether CEOs’ behavior affects
financial decisions, whether it is a good or bad relationship, then what
recommendations can be given for the business.
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1.2. A brief of the Literature Review
The thesis is closely related to the literature about the relationship between
overconfidence and corporate financial policies. Malmendier and Tate (2005) prove
that companies, which are managed by overconfident CEOs, has the higher sensitivity
of internal cash flow than those being run by rational CEOs. Malmendier and Tate
(2008) suppose overconfident CEOs are likely to involve in takeovers, so the value
of the companies is decreased. Malmendier et al (2011) argue that when recognizing
that the value of the company is underestimated, the CEO tends to avoid more
external fundings. Valeria Fedyk (2013) notes that CEO’s confidence causes two
main impacts on the funding decisions. The first impact is that overconfident tends to
raise more debt and stocks to invest in potential projects. They prefer using debt to
using stock to raise fund; if CEOs estimate that the internal values of their stocks are
higher than the market values of the stocks, reasonably they will sell new stocks to
the market. Moreover, Bouwman (2009) analyze the changes in the stock price and
an increase of dividend in companies having optimistic CEOs.
In addition, the topic about the relationship between CEO’s overconfidence and
financial decisions is quite new in Vietnam. Recently, it received many concerns from
domestic scholars. For example, Nguyen Ngoc Dinh (2015) and Le Dat Chi (2015)
find out some weak evidence about overconfidence can affect financial decisions.
However, the methodology of overconfidence measurement is still a challenge in
Vietnam. In this thesis, overconfidence measurement is improved significantly to
those two previous papers to avoid the endogeneity.
1.3. The aim of the Thesis
Determining the existence of the relationship between overconfidence and investment
decision in Vietnam. Determining the existence of the relationship between
overconfidence and investment decision in Vietnam under the effect of the financial
conditions. Determining the existence of the relationship between overconfidence
