Managerial optimism and earnings smoothing

This paper empirically examines how CEO optimism affects earnings smoothing and earnings surprises. The main finding is that optimistic managers smooth earnings more than rational managers and are associated with smaller (in absolute value) earnings surprises. A possible theoretical explanation is o...

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Bibliographic Details
Published in:Journal of banking & finance 2014-04, Vol.41, p.283-303
Main Author: Bouwman, Christa H.S.
Format: Article
Language:English
Subjects:
Banking
Behavioral
Chief executive officers
Corporate governance
Earnings
Earnings management
Earnings surprise
Litigation
Organizational behavior
Organizational behaviour
Risk factors
Smoothing
Studies
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Summary:This paper empirically examines how CEO optimism affects earnings smoothing and earnings surprises. The main finding is that optimistic managers smooth earnings more than rational managers and are associated with smaller (in absolute value) earnings surprises. A possible theoretical explanation is offered for these results based on a combination of the “torpedo effect,” the innate behavior of optimists, and the risk of litigation/prosecution for over-reporting earnings.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2013.12.019