CEO Overconfidence and Earnings Management: Evidence from Property-Liability Insurers' Loss Reserves

This study investigates the relation between managerial overconfidence and loss-reserving practices in the U.S. property-liability insurance industry. We find robust evidence that CEO overconfidence is significantly associated with relatively low loss reserves, resulting in relatively high reported...

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Bibliographic Details
Published in:North American actuarial journal 2018-07, Vol.22 (3), p.380-404
Main Authors: Berry-Stölzle, Thomas R., Eastman, Evan M., Xu, Jianren
Format: Article
Language:English
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Summary:This study investigates the relation between managerial overconfidence and loss-reserving practices in the U.S. property-liability insurance industry. We find robust evidence that CEO overconfidence is significantly associated with relatively low loss reserves, resulting in relatively high reported earnings. This finding is consistent with the theoretical predication that overconfident managers overestimate the returns on their investment projects and underestimate losses. Our result contributes to the literature linking CEOs' personality traits and firms' accounting policy as well as to the literature on insurer loss-reserving practices.
ISSN:1092-0277
2325-0453
DOI:10.1080/10920277.2017.1421977