Managerial Overconfidence and Debt Maturity Structure of Malaysian Construction and Material Companies

Abstract

This study presents the relationship between managerial overconfidence and debt maturity structure of listed Malaysian Construction and Material companies. The study examines 57 companies for a period of six years from 2005 to 2010. The result shows that when the confidence level of managers increases, the preference for long-term debt decreases. This usually is the case for small-sized companies. Highly overconfident managers endeavor to match the assets structure and debt maturity structure for the purpose of interest payments. Hence, under their management, the maturity period of the debt structure would be reduced when the company is able to increase its profits. The tenure of the manager and the debt ratio does positively (negatively) and significantly influence the debt maturity structure. Overconfident managers with low educational levels, most likely choose long-term debt structure and managers with a finance or technical background show positive relationship towards debt maturity structure regardless of the level of the managerial overconfidence.