Managerial Overconfidence and Accounting Conservatism

Journal of Accounting Research 51 (1): 1-30

Mays Business School Research Paper No. 2012-77

46 Pages Posted: 2 Jul 2012 Last revised: 17 Jan 2013

Anwer S. Ahmed

Texas A&M University - Mays Business School

Scott Duellman

Saint Louis University - Department of Accounting

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

Ahmed, Anwer S. and Duellman, Scott, Managerial Overconfidence and Accounting Conservatism (July 2, 2012). Journal of Accounting Research 51 (1): 1-30; Mays Business School Research Paper No. 2012-77. Available at SSRN: https://ssrn.com/abstract=2097895 or http://dx.doi.org/10.2139/ssrn.2097895

Anwer S. Ahmed

Texas A&M University - Mays Business School ( email )

430 Wehner
College Station, TX 77843-4353
United States

Scott Duellman (Contact Author)

Saint Louis University - Department of Accounting ( email )

3674 Lindell Blvd.
St. Louis, MO 63108
United States

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