Investigating the effect of stock liquidity on the construction of a managerial empire: Financial limitations and overconfidence of the CEO

Subject Areas : Journal of Capital Market Analysis

Mahdi Alibalai ¹ , Mohsen Rahimi Dastjerdi ² , Rahman Saedi ³

1 - Department of Accounting, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran.
2 - Department of Accounting, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran
3 - Department of Accounting, Faculty of Humanities and Law, Islamic Azad University, Isfahan (Khorasgan), Iran.

Received: 2024-06-09 Accepted : 2024-11-27 Published : 2025-06-21

Keywords: Stock liquidity, management empire building, financial limitations, CEO's overconfidence.,

Abstract :

Managers through their decisions to achieve goals such as gaining power, prestige and status and receiving excessive rewards; They opportunistically grow their companies beyond the desired size. On the other hand, the high liquidity of stocks can help reduce financial constraints and cause opportunistic managers with their overconfidence to make inefficient investments to build an empire. This study investigates the effect of stock liquidity on the construction of a managerial empire, considering the financial limitations and excessive self-confidence of the CEO. The statistical population of this research is the companies accepted in the Tehran Stock Exchange and its statistical sample includes the data of 105 companies for the 9-year period of 1393-1401. The sampling method was a systematic elimination method. In this research, multiple regression models were used to analyze the data and test the hypotheses using the combined data method. The results of the research showed that the liquidity of stocks has a positive effect on the construction of managerial empire, and the financial limitations strengthen this effect, and the excessive self-confidence of the CEO modifies the effect of liquidity of stocks on the construction of managerial empire.

References:

آزاد، رحمت اله. کاميابي، يحيي. خليل پور، مهدي. (1399). ويژگي‌هاي رفتاري مديران و نقدشوندگي سهام. پژوهشهاي حسابداري مالي و حسابرسي 12(45): 191-214.
حشمت، نساء. برادران حسن زاده، رسول. متقي، علي اصغر. (1402). بررسي تاثير رويکردهاي شش‌گانه الگوي جامع ارزيابي مالي، راهبري و مسئوليت‌پذيري اجتماعي (‏FGSCM‏) ‏بر نقدشوندگي سهام با استفاده از نظريه‌هاي بازخورد و نمايندگي. دانش حسابداري و حسابرسي مديريت 12(46): 473-498.
عمراني، سحر (1400). تاثير توانايي مديريت بر نقدشوندگي سهام در بانک هاي خصوصي پذيرفته شده در بورس اوراق بهادار تهران. نشريه علمي تخصصي شباک 7(2): 249-261.
مرادي عزيزالله محمد قربانيان (1399). نقش تعديل گري کيفيت گزارش مالي بر رابطه بين حاکميت شرکتي و ريسک نقد شوندگي سهام. رويکردهاي پژوهشي نوين در مديريت و حسابداري 4(28): 15-32.
مهراني، ساسان. رسائيان، امير (1388). نقدشوندگي سهام و نقدشوندگي دارايي ها. حسابرس. شماره 46. ص ص 52 -56

Ahmed, A. and Duellamanm, S. (2013). Managerial overconfidence and accounting conservatism. Journal of Accounting Research. 51(1): 1-30.
Acharya, V. V., and L. H. Pedersen. (2005). Asset pricing with liquidity risk. Journal of Financial Economics 77 (2): 375–410. Ali, Z. and Tauni, M.Z. (2021), "CEO overconfidence and future firm risk in China: the moderating role of institutional investors", Chinese Management Studies, Vol.
ahead-of-print No. ahead-of-print. https://doi.org/10.1108/CMS-04-2019-0147
Amihud, Y. (2002). “Illiquidity and Stock Returns: Cross-Section and Time-Series Effects.” Journal of Financial Markets 5: 31–56.
Bragoli. D (2021) Machine-learning models for bankruptcy prediction: do industrial variables matter? https://doi.org/10.1080/17421772.2021.1977377.
Chatterjee, Sris. Hasan, Iftekhar. John, Kose. Yan, An. (2021). Stock liquidity, empire building, and valuation, Journal of Corporate Finance 70 (2021) 102051.
Chhaochharia, V., Kumar, A., Niessen-Ruenzi, A., (2012). Local investors and corporate governance. J. Acc. Econ. 54 (1), 42–67. Gul, Ferdinand A. Krishnamurti, Chandrasekhar. Shams, Syed. Chowdhury, Hasibul. (2020). Corporate social responsibility, overconfident CEOs and empire
building: Agency and stakeholder theoretic perspectives, Journal of Business Research 111 (2020) 52–68.
Hope, O.-K., Thomas, W.B., (2008). Managerial empire building and firm disclosure. J. Account. Res. 46 (3), 591–626.
Jensen, M.C., (1986). Agency costs of free cash flow, corporate finance, and takeovers. Amer. Econ. Rev. 76, 323–329. Katrin Weiskirchner-Merten (2022): Capital budgeting and managerial empire building, Accounting and Business Research, DOI: 10.1080/00014788.2021.2021502 To
link to this article: https://doi.org/10.1080/00014788.2021.2021502.
Levi, M., Li, K., Zhang, F., (2014). Director gender and mergers and acquisitions. J. Corp. Finance 28, 185–200.
Ng, J. (2011). The effect of information quality on liquidity risk. Journal of Accounting and Economics 52 (2–3): 126–43. Prommin, P. Jumreornvong, S. Jiraporn, P. Tong, S. (2016). Liquidity, ownership concentration, corporate governance, and firm value: Evidence from Thailand,
Global Finance Journal, In Press, Corrected Proof — Note to users. Shams, S. Bose, S. Gunasekarag, A. (2022). Does corporate tax avoidance promote managerial empire building?, Journal of Contemporary Accounting and
Economics 18, 100293. Young, C. S., Chen, C. H., Chien, F. L., & Yu, T. Y.(2014). Managerial empire building and segment reporting quality: The role of auditor industry specialization.
Corporate Ownership & Control, 12(1-5), 518-530