Managerial Overconfidence and Accounting Conservatism
Journal of Accounting Research 51 (1): 1-30
46 Pages Posted: 2 Jul 2012 Last revised: 17 Jan 2013
Date Written: July 2, 2012
Abstract
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 [2011] that overconfidence affects financial reporting behavior.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Who Makes Acquisitions? CEO Overconfidence and the Market's Reaction
-
On the Evolution of Overconfidence and Entrepreneurs
By Antonio E. Bernardo and Ivo Welch
-
Market Timing and Managerial Portfolio Decisions
By Dirk Jenter
-
Behavioral Corporate Finance: A Survey
By Malcolm P. Baker, Richard S. Ruback, ...
-
Behavioral Corporate Finance: A Survey
By Malcolm P. Baker, Richard S. Ruback, ...
-
Behavioral Corporate Finance: A Survey
By Malcolm P. Baker, Richard S. Ruback, ...