An empirical investigation between overconfidence and leverage: The case of BİST construction industry

Conventional finance theories suggest that people behave rationally and act. Posterior studies found out many anomalies which conventional finance cannot explain. To explain these anomalies, by contrast with the conventional finance, there are new finance theories suggesting that human behavior is not rational. These theories created a new field in finance which is called "Behavioral Finance". According to the "Behavioral Finance" theories, in decision making process people are not behaving rational and deciding under various psychological impression. In this paper, we studied the relation between overconfidence hypothesis which is an important approach of "Behavioral Finance" and leverage ratio which is the debt level. According to data analyses of companies in Istanbul Stock Exchange between the years of 2002 and 2012, it is observed that there exists a negative relationship between the overconfidence and the debt level.