The Contagion Effect of Overconfidence in Business Group

Overconfidence is a common psychological phenomenon of individuals. Business groups are important participants in China. This paper combines these two important topics together, by studying the overconfidence contagion effects in business group. Based on the 2007-2019 Shanghai and Shenzhen A-share group holding listed companies’ hand collected samples, this paper proves that if one group member show overconfidence, the other members are more likely to be overconfidence in next year, proving that observing others’ decisions triggers overconfidence. Further analyses find that three channels producing overconfidence contagion effect: promotion incentives, optimistic emotion and misleading information. Besides, this paper also finds that from macro to micro, there are many factors may influence this effect. Our findings not only enrich research on contagion effects in business group, but also provide empirical evidence that how overconfidence can be a social signaling bias