MANAGERIAL OVERCONFIDENCE AND EARNINGS MANAGEMENT

Overconfident executives tend to make their firms' financing and investment decisions irrationally. Thus, we predict that overconfident managers will be prone to have earnings management behavior. We analyze whether executive overconfidence affects earnings management, including accrual-based a...

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Bibliographic Details
Published in:International journal of organizational innovation 2018-01, Vol.10 (3), p.189-205
Main Authors: Chang, Shu-Ling, Hwang, Long-Jainn, Li, Chun-An, Jhou, Cian-Ting
Format: Article
Language:English
Subjects:
Accounting policies
Cash flow forecasting
Chief executive officers
Confidence
Costs
Earnings management
Financial restatements
Hypotheses
Inventory
Investigations
Investments
Managers
Net income
Production costs
Regression analysis
Variables
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Summary:Overconfident executives tend to make their firms' financing and investment decisions irrationally. Thus, we predict that overconfident managers will be prone to have earnings management behavior. We analyze whether executive overconfidence affects earnings management, including accrual-based and real earnings management. Using quantile regression model and ordinary least squares model, the evidences indicate that managerial overconfidence is positively associated with accrual-based earnings management based on the 744 public listed companies from 2006 through 2012 in Taiwan. However, according to the results of quantile regression under different quantile, real earnings management and accrual-based earnings management has substitute relationship (negative association) in the lower overconfident quantile and has complementary relationship (positive association) in the higher overconfident quantile. The results support that managers with more overconfidence are inclined to use both kinds of earnings management compared with less overconfidence managers.
ISSN:1943-1813