The Effect Of Overconfidence Managerial And Corporate Governance On Internal Financing: Evidence From Manufacturing In Indonesia

Abstract

This study aims to examine the effect of managerial overconfidence and corporate governance on internal financing. The research population is a manufacturing company listed on the Indonesia Stock Exchange. Sample determination using purposive so that the research sample amounted to 264 observation data. The research data were analyzed using smart PLS version 3. The result of the study is that managerial overconfidence has a positive and significant effect on internal financing. This shows that managers view the profit earned as a result of their performance so they prefer to hold as retained earnings rather than distributed to shareholders as dividends, The availability of funds in the company will make it easier for managers to fund the company's activities, besides that managers who are overconfident view external financing in the future as more expensive than internal funds so as to restrain profits, this is done because managers who are overconfident want to avoid risks arising from external financing. Meanwhile, corporate governance has a positive but not significant effect on internal financing. This shows that when shareholders feel that their rights are well protected, they are more willing to let companies with good growth opportunities maintain their retained earnings, because they are confident that they will share the results of a good project in the future.