Managerial Overconfidence and Corporate Investment Decisions of Listed Firms in The Nairobi Securities Exchange, Kenya: A Theoretical Review
DOI:
https://doi.org/10.53819/81018102t7086Abstract
Firms listed on the Nairobi Securities Exchange play a significant role in Kenya's economic development. Despite their strategic importance, many listed firms have exhibited inconsistent investment patterns, characterized by underinvestment in profitable projects, fluctuating capital expenditure levels, and declining financial growth over the past 6 years (2020 – 2025). These challenges have been attributed to factors such as high borrowing costs, macroeconomic volatility, limited access to long-term financing, and structural inefficiencies within the capital market. Consequently, concerns have emerged regarding the efficiency of corporate investment decisions among firms listed on the Nairobi Securities Exchange and the factors that influence their investment behavior. The study's general objective is to investigate the relationship between managerial overconfidence and corporate investment decisions of listed firms in the Nairobi Securities Exchange, Kenya. Specifically, the study will determine the relationship between earnings forecast bias and corporate investment decisions; assess the relationship between investment-cash flow sensitivity and corporate investment decisions; establish the relationship between CEO stock option exercise behavior and corporate investment decisions; establish the relationship between debt financing behavior and corporate investment decisions, and to determine the moderating effect of firm size on the relationship between managerial overconfidence and corporate investment decisions of listed firms in the Nairobi Securities Exchange, Kenya. The study will be guided by the pecking order theory, behavioral finance theory, agency theory, prospect theory (Kahneman & Tversky), and upper echelons theory. The empirical literature review will be drawn from international, regional, and local sources. Recent research studies in Kenya, African countries, and international markets will be investigated.
Keywords: Managerial Overconfidence, Corporate Investment Decisions, Earnings Forecast Bias, Investment Cash Flow Sensitivity, CEO Stock Option Exercise Behavior, Debt Financing Behavior, and Firm Size
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