An Investigation into the Effect of CEO’s Perceptual Biases on Investment Efficiency and Financing Constraints of the Iranian Listed Firms

Document Type : Research Paper


1 Department of Accounting, Kish International Branch (South Tehran), Islamic Azad University, Kish Island, Iran

2 Department of Accounting, South Tehran Branch, Islamic Azad University, Tehran, Iran



Efficient market hypothesis predicts that capital markets are beset with cer-tain biases which result from wrong estimation, and negatively influence shareholders’ expectations for higher returns, which in turn affects invest-ment efficiency, financial constraints and corporate performance efficacy in competitive markets, and eventually mitigates firm value. The present study aims at examining the impact of CEOs’ perceptual biases on investment efficiency and financing constraints of the firms listed on the Tehran Stock Exchange over the period 2013-2017. Earnings forecast error and CEOs’ overconfidence biases serve as the measure of CEO’s perceptual biases, the model developed by Biddle et al (2009) is employed to proxy for investment efficiency, and KZ model is also adopted to calculate financing constraints. The results reveal that both earnings forecast error and overconfidence biases negatively affect investment efficiency, while they positively influence cor-porate financing constraints.


Main Subjects

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Volume 6, Issue 1
January 2021
Pages 79-93
  • Receive Date: 11 February 2019
  • Revise Date: 05 May 2019
  • Accept Date: 19 May 2019
  • First Publish Date: 01 January 2021