Investigating the Impact of Managers' Overconfidence on Social Responsibility (Case Study of Tehran Stock Exchange Listed Companies)

پژوهش نامه مدیریت تحول

Article 7, Volume 8, Spring & summer 2016 - Serial Number 15, September 2016, Pages 107-130   

Document Type: Articles

DOI: 10.22067/pmt.v8i15.51594

Authors

Mohsen Akbari^{* 1}; Masoomeh Ghasemi Shams¹; Fatemeh Hooshmand²

¹University of Guilan

²Ferdowsi University

Abstract

1- INTRODUCTION
The ever-increasing demand of the stakeholders from corporations to accept social responsibilities encourages them to participate in ecological and social responsibilities. By the social responsibilities of the organization we mean a pattern in which there is an adherence and alliance between corporation’s activities and values to fulfill all stakeholders’ interests. Policies and activities related to social responsibility can reduce corporations’ risks. Some personal characteristics of the managers can affect corporations’ policies, like immunization. Overconfident managers overestimate the possibility of good results to occur and they also will underestimate the possibility of bad results as a consequent of their own activities. Therefore, these managers in comparison with logical managers ignore the immunization impacts of social responsibilities so that they give less attention to the improvement of social responsibilities as a shield against specific risks in their firms. Since this over optimism may hurt companies, the study of the impacts of over confident management on companies' performances and especially on their social responsibilities is of a great importance. Accordingly, in this study, we review the impacts of over confident managing on the social responsibilities of the accepted companies in Tehran stock exchange.

2. OVERCONFIDENCE
Over confident management can have an outstanding explanation about some corporation’s decisions? Over confidence is defined as over assessment or overestimation about one’s abilities in his/her current condition.
Corporate Social Responsibility (CSR)
The organizations’ social responsibilities include economy, laws, ethics and philanthropic expectations commercial units which can be extended to all stakeholders. By Stakeholders we mean every individual or any group which can affect the activities, decisions, policies or the goals of the corporation.
Some researchers define corporate social responsibilities as follows: any activity which is taken to improve some social goals that are above financial goals.
Hypotheses
The main hypotheses of the present study are as following:
1) Over confident management has a positive impact on corporations’ social responsibilities.
2) The effect of over confidence on the institutional dimension of social responsibilities is bigger than its technical dimension.

In addition, the secondary hypotheses are:
1-1) over confident management has a positive impact on the institutional dimension of social responsibilities.
2-1) over confident management has a positive impact on the technical dimension of social responsibilities.

3- METHODOLOGY
The study combined and analyzed data of 68 companies from 2009 to 2013. Documentary research is used to gather data in order to test the hypotheses. For analyzing descriptive data, Excel software is used and for testing hypotheses multivariate regression, with the help of Eviews 7 software is applied. To control the effects of other factors on the model, control variables such as the size, financial leverage and ROA are used in the model.
4- RESULTS & DISCUSSION
The first hypothesis of this study examines the impact of top executives' overconfidence on corporate social responsibility. The results showed that during the period of this study, top executives' overconfidence impacted social responsibility. The second hypothesis investigates the impact of overconfidence on both technical and institutional dimensions of corporate social responsibility. The results show that the impact of overconfidence on the technical and institutional corporate social responsibility is not different.

5 – CONCLUSIONS & IMPLICATIONS
In this study the impacts of over confident management on social responsibilities of accepted companies in Tehran stock exchange were reviewed. The results of the first hypothesis show that overconfidence in managers will have a negative impact on their social responsibilities. In other words, because a vast number of stakeholders including employees, suppliers, costumers, etc., affect corporation’s value in a positive manner and due to the fact that the activities related to corporations’ social responsibility can only be increased in the favor of the stakeholders, as the results demonstrate, the corporation’s value (which is stakeholders' value) will increase.
Considering the second main hypothesis, it was expected that the negative impact of over confident management on the institutional dimension of social responsibility would be stronger than its impact on its' technical dimension, but there were no significant differences in the impact factors of these connection equations. Regarding control variables of the positive connection between corporations’ profitability and social responsibilities, it was found that companies which have a better financial performance would have more available resources to invest on social responsibilities. In addition, the positive impact of company size is related to social responsibilities. However, financial leverage has negative impact on corporations’ social responsibilities because high debt leverage will leave less financial resources to invest on social responsibilities acts.
Finally, some suggestions are given to researchers for further studies.
• The relationship between social responsibilities and over confident management in diverse industrial divisions.
• The relationship between social responsibilities and corporations’ value, and moderating corporate governance.
• The relationship between over confident management and corporations’ social responsibilities, and each of the components of technical and social dimensions in certain divisions.
• The relationship between over confident management and corporations’ social responsibilities, and moderating a company’s brand name, values, and reputation.

Keywords

Managers' overconfidence; corporate social responsibility; Leverage; profitability; Risk

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