THE IMPACT OF MANAGERIAL OVERCONFIDENCE ON FIRMS’ CROSS-BORDER INVESTMENT PERFORMANCE
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Abstract
With the accelerated development of the digital economy and the continuous restructuring of global value chains, Chinese enterprises have expanded their outbound investments. However, the increasing failure rate highlights the need to improve investment performance. As key decision-makers, managers’ cognitive biases—particularly overconfidence—can significantly affect strategic outcomes. Drawing on behavioral finance and upper echelons theory, this study investigates how managerial overconfidence influences the performance of cross-border investments, as well as the mediating role of resource misallocation and the moderating role of institutional distance. This study uses Chinese listed companies on the Shanghai and Shenzhen stock exchanges that engaged in cross-border investments during 2016-2022 as its research sample and constructs an analytical framework of “psychological traits–investment behavior–performance outcomes”. The findings reveal that overconfident managers tend to reduces investment performance, with resource misallocation serving as a critical mediator. Moreover, both formal and informal institutional distances between home and host countries mitigate this negative effect. The study suggests that firms carefully assess institutional differences to mitigate cognitive bias–induced risks and enhance the success rate of international investments.
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