Overconfidence,Risk Aversion and Excutive Compensation

The risk aversion of the manager will increase the compensation cost based on performance.However,in this paper,by empirical study of data from Chinese listed firms,it is found that overconfidence will decrease the negative impacts of the risk aversion,which is acting as mangers with overconfidence are more sensitive to the compensation performance.It is also found that managers from the companies with higher proportion of unsystematic risks are more sensitive to the compensation performance than those from the companies with higher proportion of systematic risks,which means that the executive overconfidence mainly arises from the perception bias on the unsystematic risk of the firm.