The Effect of Managerial Overconfidence on the Corporate Bond Ratings

This study set up a hypothesis that the corporate with the higher managerial overconfidence would have lower corporate bond rating than the corporate with the less managerial overconfidence, and an empirical analysis was performed with an ordered logistic model. The hypothesis of this study was based on the study result by Na and Kim(2016), which reported that the higher managerial overconfidence, the more fraud could intervene. Between 2001 and 2011, after analyzing of 902 companies, the regression coefficient of the managerial overconfidence was shown to have a significantly negative(－) value. This result could mean that the companies with high managerial overconfidence would have lower ratings of the corporate bonds than the companies with low managerial overconfidence. Also this suggested the managerial overconfidence could act negatively on the calculation of corporate bond rating. In the previous studies, empirical studies were conducted on the relation between the bond rating and the various corporate business variables, but there had been hardly any study about the relation between the managerial characteristics and the corporate bond rating. In this regard, there was some implication of the result of this study, which suggested the managerial overconfidence significantly affected the corporate bond rating and the managerial characteristics could be a factor of capital cost.