Journal of Accounting Research 51 (1): 1-30
46 Pages Posted: 2 Jul 2012 Last revised: 17 Jan 2013
Date Written: July 2, 2012
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.
Suggested Citation: 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
By Ray Ball