Social ties, managerial overconfidence, and investment efficiency

This study examines the association between the social ties among board members and investment efficiency and whether managerial overconfidence aggravates this association. We find that social ties among directors are negatively associated with investment efficiency and managerial overconfidence aggravates this association. These results suggest that social ties between inside and outside directors weaken board independence, which ultimately has a negative impact on optimal investment decision-making. In addition, stakeholders must effectively monitor managers who are overconfident when board members are socially tied.