Abstract

One of the factors that led to stock price crash is, managers’ activites to conceal bad news and negative performance inside of the company. This managerial behavior in addition to agency incentives, could be due to a behavioral trait which is called the overconfidence. The purpose of this study is to determine the effect of overconfidence as a managerial psychological bias on the future stock price crash risk. In order to attain the research purpose, 117 companies among the listed companies in Tehran Stock Exchange during the years of 1383 to 1392 (2005 – 2014) were selected as statistical sample. Stock price crash risk was computed by utilizing the three criteria and the time horizon over the next two years, also, managerial overconfidence was calculated based on the concept of excessive investment. In order to test the hypothesis, multivariate linear regression model and panel data have been used. The results of this study indicated that Managerial overconfidence has a positive and significant effect on each three criterion related to the stock price crash risk. In other words, overconfidence in management can increase the stock price crash risk.