Capital structure choice: The influence of sentiment in France

Oliver, Barry R. and Mefteh, Salma (2010) Capital structure choice: The influence of sentiment in France. International Journal of Behavioural Accounting and Finance, 1 4: 294-311. doi:10.1504/IJBAF.2010.032844


Author Oliver, Barry R.
Mefteh, Salma
Title Capital structure choice: The influence of sentiment in France
Journal name International Journal of Behavioural Accounting and Finance   Check publisher's open access policy
ISSN 1753-1977
1753-1969
Publication date 2010
Sub-type Article (original research)
DOI 10.1504/IJBAF.2010.032844
Volume 1
Issue 4
Start page 294
End page 311
Total pages 18
Place of publication Geneva, Switzerland
Publisher Inderscience
Language eng
Abstract The overconfidence bias in relation to investment decisions is well documented in psychology and behavioural finance literature. Less known is that an overconfidence bias also relates to financing decisions. Managers that are overconfident of their firm's future are likely to prefer debt to equity financing. This may lead to increased probability of bankruptcy and higher costs of capital. Empirically it is difficult to measure overconfidence. In this paper we decompose a publicly available measure of industry sentiment into two components: a component common with investor confidence and a component more aligned with manager industry confidence. We find in a sample of French firms that industry confidence and investor confidence are negatively related to leverage and that the unique component of manager industry confidence is positively related to leverage. This provides some support to the theory that overconfident managers prefer debt to equity. In the sample of French firms, the investor confidence component dominates, resulting in an overall negative effect of industry confidence with leverage. This may be due to higher levels of blockholder control and/or a weaker business environment in France relative to other countries.
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status Non-UQ

Document type: Journal Article
Sub-type: Article (original research)
Collection: UQ Business School Publications
 
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Created: Tue, 19 Mar 2013, 12:46:18 EST by Karen Morgan on behalf of UQ Business School