The Overconfidence Behavioral Bias in Working Capital Management and Performance of Small and Medium Enterprise in Ghana: A Conceptual Paper
Keywords:
overconfidence small and medium enterprise, working capital management, performance
Abstract
The concept of overconfidence is well understood in the financial market and corporate decision as individual investors and managers of large corporations prone to overconfident bias. This paper is the first to conceptualize overconfidence bias in working capital management and performance of Small and medium enterprises by employing qualitative case study inquiry to gain insight and SME managers overconfident behavior. This paper argues that overconfidence bias can distort working capital investment with the possibility of overinvestment working capital inventory if SME managers have enough internal equity in anticipation of higher performance.
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References
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Bandara, R. M. S., & Rathnasiri, U. A. H. A. (2016). The Working Capital Management Practices of Small and Medium Enterprises (SMEs) in Sri Lanka, ICME 2016, Faculty of Management and Finance, University of Ruhuna.
Baños-Caballero, S., García-Teruel, P. J., & Martínez-Solano, P. (2014). Working capital management, corporate performance, and financial constraints. Journal of Business Research, 67(3), 332-338.
Baños-Caballero, S., García Teruel, P. J., & Martínez Solano, P. (2010). Working capital Management in SMEs. Accounting & Finance, 50(3), 511-527.
Barros, L, Silveira, A., 2008. Overconfidence, Managerial Optimism and The Determinants of Capital Structure. Brazilian Review of Finance , 6(3),293-334.
Ben-David, I., Graham, J. R., & Harvey, C. R. (2007). Managerial overconfidence and corporate policies (No. w13711). National Bureau of Economic Research
Bertrand, M., & Schoar, A. (2003). Managing with style: The effect of managers on firm policies. The Quarterly journal of economics, 118(4), 1169-120
Chen, H. J., & Lin, S. H. (2013). Managerial optimism, investment efficiency, and firm valuation. Multinational Finance Journal, 17(3/4), 295-340.
Cooper et al., 1988; Cooper, A. C., C. Y. Woo, and W. C. Dunkelberg, (1988). Entrepreneurs perceived chances for success. Journal of Business Venturing 3, 97-108.
Daniel, K., & Hirshleifer, D. (2015). Overconfident investors, predictable returns, and excessive trading. Journal of Economic Perspectives, 29(4), 61-88.
Donkor, J. (2015). Working Capital Management of SMEs: Ghana’s version of the story. Journal of Economics, Management and Trade, 1-12.
Eichholtz, P., & Yönder, E. (2015). CEO overconfidence, REIT investment activity and performance. Real Estate Economics, 43(1), 139-162.
Fairchild, R. (2007). Managerial overconfidence, agency problems, financing decisions and firm performance. University of Bath School of Management Working Paper Series.
Filbeck, G., & Lee, S. (2000). Financial Management Techniques in Family Businesses. Family Business Review, 13(3), 201-216.
Filbeck, G., & Lee, S. (2000). Financial Management Techniques in Family Businesses. Family Business Review, 13(3), 201-216.
Galasso, A., & Simcoe, T. S. (2011). CEO overconfidence and innovation. Management Science, 57(8), 1469-1484.
Hackbarth, D. (2008). Managerial traits and capital structure decisions. Journal of financial and quantitative analysis, 43(4), 843-881.
Hamza, K., Mutala, Z., & Antwi, S. K. (2015). Cash Management Practices and Financial Performance of Small and Medium Enterprises (SMEs) in the Northern Region of Ghana. International Journal of Economics, Commerce and Management, 3(7), 456-480.
Kwame K (2007). Working capital management practices of small firms in the Ashanti region of Ghana. Retrieved from http://www. ssrn.com on January 2010.
Lamptey, L. L., Frimpong, K., & Morrison, A. B. (2017). Empirical study on the Influence of Working Capital Management on Performance of SMEs in a Developing Economy. Journal of Economics, Management and Trade, 217(4), 1-10.
Langer, E. J. (1975). The illusion of control. Journal of personality and social psychology, 32(2), 311.
Malmendier, U., & Tate, G. (2008). Who makes acquisitions? CEO overconfidence and the market's reaction. Journal of financial Economics, 89(1), 20-43.
Malmendier, U., & Tate, G. (2015). Behavioral CEOs: The role of managerial overconfidence. Journal of Economic Perspectives, 29(4), 37-60.
Malmendier, U., Tate, G., & Yan, J. (2011). Overconfidence and early life experiences: the effect of managerial traits on corporate financial policies. The Journal of finance, 66(5), 1687-1733.
Muchaendepi, W., Mbohwa, C., Hamandishe, T., & Kanyepe, J. (2019). Inventory Management and Performance of SMEs in the Manufacturing Sector of Harare. Procedia Manufacturing, 33, 454-461.
Pais, M. A., & Gama, P. M. (2015). Working capital management and SMEs profitability: Portuguese evidence. International Journal of Managerial Finance.
Panpan, H., & Xindong, Z. (2017). Can CEO Overconfidence Account for Enterprise R&D Investment Distortion in the Case of Financing Constraint. Science & Technology Progress and Policy, (2), 22.
Pham, N. L. (2013). Effective working capital management in small and medium enterprises in Vietnam (Doctoral dissertation, Dublin Business School)
Pietersen, A. (2012). Working Capital Management practices of Small and Medium Enterprises in the Western Region: A survey of selected SMEs in the Sekondi-Takoradi Metropolis. Published Dissertation submitted for Masters of Business administration. Kwame Nkrumah University of Science and Technology.
Roll, R. (1986). The hubris hypothesis of corporate takeovers. Journal of business, 197-216.
Simon, H. A. (1955). A behavioral model of rational choice. The quarterly journal of economics, 69(1), 99-118.
Svenson, O. (1981)"Are we all less risky and more skillful than our fellow drivers?" Acta Psychologica 47(2), 143–148.
Weinstein, N. D. (1980). Unrealistic optimism about future life events. Journal of personality and social psychology, 39(5), 806.
Yung, K., Li, D. D., & Sun, Q. S. (2015). CEO overconfidence and financial policies of real estate investment trusts (REITs). Journal of Property Research, 32(4), 384-4
Bandara, R. M. S., & Rathnasiri, U. A. H. A. (2016). The Working Capital Management Practices of Small and Medium Enterprises (SMEs) in Sri Lanka, ICME 2016, Faculty of Management and Finance, University of Ruhuna.
Baños-Caballero, S., García-Teruel, P. J., & Martínez-Solano, P. (2014). Working capital management, corporate performance, and financial constraints. Journal of Business Research, 67(3), 332-338.
Baños-Caballero, S., García Teruel, P. J., & Martínez Solano, P. (2010). Working capital Management in SMEs. Accounting & Finance, 50(3), 511-527.
Barros, L, Silveira, A., 2008. Overconfidence, Managerial Optimism and The Determinants of Capital Structure. Brazilian Review of Finance , 6(3),293-334.
Ben-David, I., Graham, J. R., & Harvey, C. R. (2007). Managerial overconfidence and corporate policies (No. w13711). National Bureau of Economic Research
Bertrand, M., & Schoar, A. (2003). Managing with style: The effect of managers on firm policies. The Quarterly journal of economics, 118(4), 1169-120
Chen, H. J., & Lin, S. H. (2013). Managerial optimism, investment efficiency, and firm valuation. Multinational Finance Journal, 17(3/4), 295-340.
Cooper et al., 1988; Cooper, A. C., C. Y. Woo, and W. C. Dunkelberg, (1988). Entrepreneurs perceived chances for success. Journal of Business Venturing 3, 97-108.
Daniel, K., & Hirshleifer, D. (2015). Overconfident investors, predictable returns, and excessive trading. Journal of Economic Perspectives, 29(4), 61-88.
Donkor, J. (2015). Working Capital Management of SMEs: Ghana’s version of the story. Journal of Economics, Management and Trade, 1-12.
Eichholtz, P., & Yönder, E. (2015). CEO overconfidence, REIT investment activity and performance. Real Estate Economics, 43(1), 139-162.
Fairchild, R. (2007). Managerial overconfidence, agency problems, financing decisions and firm performance. University of Bath School of Management Working Paper Series.
Filbeck, G., & Lee, S. (2000). Financial Management Techniques in Family Businesses. Family Business Review, 13(3), 201-216.
Filbeck, G., & Lee, S. (2000). Financial Management Techniques in Family Businesses. Family Business Review, 13(3), 201-216.
Galasso, A., & Simcoe, T. S. (2011). CEO overconfidence and innovation. Management Science, 57(8), 1469-1484.
Hackbarth, D. (2008). Managerial traits and capital structure decisions. Journal of financial and quantitative analysis, 43(4), 843-881.
Hamza, K., Mutala, Z., & Antwi, S. K. (2015). Cash Management Practices and Financial Performance of Small and Medium Enterprises (SMEs) in the Northern Region of Ghana. International Journal of Economics, Commerce and Management, 3(7), 456-480.
Kwame K (2007). Working capital management practices of small firms in the Ashanti region of Ghana. Retrieved from http://www. ssrn.com on January 2010.
Lamptey, L. L., Frimpong, K., & Morrison, A. B. (2017). Empirical study on the Influence of Working Capital Management on Performance of SMEs in a Developing Economy. Journal of Economics, Management and Trade, 217(4), 1-10.
Langer, E. J. (1975). The illusion of control. Journal of personality and social psychology, 32(2), 311.
Malmendier, U., & Tate, G. (2008). Who makes acquisitions? CEO overconfidence and the market's reaction. Journal of financial Economics, 89(1), 20-43.
Malmendier, U., & Tate, G. (2015). Behavioral CEOs: The role of managerial overconfidence. Journal of Economic Perspectives, 29(4), 37-60.
Malmendier, U., Tate, G., & Yan, J. (2011). Overconfidence and early life experiences: the effect of managerial traits on corporate financial policies. The Journal of finance, 66(5), 1687-1733.
Muchaendepi, W., Mbohwa, C., Hamandishe, T., & Kanyepe, J. (2019). Inventory Management and Performance of SMEs in the Manufacturing Sector of Harare. Procedia Manufacturing, 33, 454-461.
Pais, M. A., & Gama, P. M. (2015). Working capital management and SMEs profitability: Portuguese evidence. International Journal of Managerial Finance.
Panpan, H., & Xindong, Z. (2017). Can CEO Overconfidence Account for Enterprise R&D Investment Distortion in the Case of Financing Constraint. Science & Technology Progress and Policy, (2), 22.
Pham, N. L. (2013). Effective working capital management in small and medium enterprises in Vietnam (Doctoral dissertation, Dublin Business School)
Pietersen, A. (2012). Working Capital Management practices of Small and Medium Enterprises in the Western Region: A survey of selected SMEs in the Sekondi-Takoradi Metropolis. Published Dissertation submitted for Masters of Business administration. Kwame Nkrumah University of Science and Technology.
Roll, R. (1986). The hubris hypothesis of corporate takeovers. Journal of business, 197-216.
Simon, H. A. (1955). A behavioral model of rational choice. The quarterly journal of economics, 69(1), 99-118.
Svenson, O. (1981)"Are we all less risky and more skillful than our fellow drivers?" Acta Psychologica 47(2), 143–148.
Weinstein, N. D. (1980). Unrealistic optimism about future life events. Journal of personality and social psychology, 39(5), 806.
Yung, K., Li, D. D., & Sun, Q. S. (2015). CEO overconfidence and financial policies of real estate investment trusts (REITs). Journal of Property Research, 32(4), 384-4
Published
2020-07-10
How to Cite
Lamptey, J., Marsidi, A., Usman, B. and Ali, A. (2020) “The Overconfidence Behavioral Bias in Working Capital Management and Performance of Small and Medium Enterprise in Ghana: A Conceptual Paper”, Malaysian Journal of Social Sciences and Humanities (MJSSH), 5(7), pp. 124 - 129. doi: 10.47405/mjssh.v5i7.438.
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