Managerial Overconfidence and Accounting Conservatism
Anwer S. Ahmed
Texas A&M University - Mays Business School
Saint Louis University - Department of Accounting
July 2, 2012
Journal of Accounting Research 51 (1): 1-30
Mays Business School Research Paper No. 2012-77
Overconfident managers overestimate future returns from their firms’ investments. Thus, we predict that overconfident managers will tend to delay loss recognition and generally use less conservative accounting. Furthermore, we test whether external monitoring helps to mitigate this effect. Using measures of both conditional and unconditional conservatism respectively, we find robust evidence of a negative relation between CEO overconfidence and accounting conservatism. We further find that external monitoring does not appear to mitigate this effect. Our findings add to the growing literature on overconfidence and complement the findings in Schrand and Zechman  that overconfidence affects financial reporting behavior.
Number of Pages in PDF File: 46
Date posted: July 2, 2012 ; Last revised: January 17, 2013
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