OVERCONFIDENCE BIAS IN MANAGERS AND DEBT DECISIONS: AN EMPIRICAL STUDY IN INDONESIA

• Main Author: Nur Jannah, Yanri
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/62270
• Institution: Institut Teknologi Bandung

The study of behavioral finance has developed with various topical issues including capital structure. This study aims to examine the impact of overconfidence bias in managers on its capital structure, particularly the debt decision chosen by the managers. It also tests whether overconfident managers follow pecking order theory in capital structure of their firms. This study uses both quantitative data and qualitative data to answer the phenomenon. It uses data from 50 public listed firms in Indonesia from 2012 to 2019. Qualitative data are obtained from interview to entrepreneurs in order to confirm overconfidence measurement which is by entrepreneurial background of the managers. The result shows that overconfident managers have negative relation with debt level, meaning overconfidence bias does not account for higher debt decision. Overconfident managers also do follow pecking order theory of capital structure. Further, overconfident managers in Indonesia are found to prefer equity to debt or reverse pecking order.