Overconfident chief executive officer and earnings management practice
DOI:
https://doi.org/10.16930/2237-7662/rccc.v17n50.2372Keywords:
Overconfidence, Earnings management, Behavioral theory.Abstract
Several studies have suggested that overconfidence leads to expectations of future performance, and managers can develop predisposition to earnings management. The objective of the study is to identify the influence of overconfident managers on Brazilian companies’ earning management practices. The methodology of the research is descriptive, with quantitative approach, through documentary research. The statistical methods used were: entropy, TOPSIS and multiple linear regression. The sample consisted of 127 Brazilian companies listed on the BM&FBovespa. It is concluded that lower overconfidence has a positive impact on earnings management, suggesting that less confident managers believe with less intensity in their abilities, and, in order to guarantee organizational results that satisfy the expectations of analysts, they conduct the earnings management in an opportunistic way so as to increase organizational results.References
Ahmed, A. S., & Duellman, S. (2013). Managerial overconfidence and accounting conservatism. Journal of Accounting Research, 51(1), 1-30. DOI: https://doi.org/10.1111/j.1475-679X.2012.00467.x
Alicke, M. D., Klotz, M. L., Breitenbecher, D. L., Yurak, T. J., & Vredenburg, D. S. (1995). Personal contact, individuation, and the better-than-average effect. Journal of Personality and Social Psychology, 68(5), 804. DOI: https://doi.org/10.1037/0022-3514.68.5.804
Anderson, R. C., & Reeb, D. M. (2003). Founding?family ownership and firm performance: evidence from the S&P 500. The Journal of Finance, 58(3), 1301-1328. DOI: https://doi.org/10.1111/1540-6261.00567
Andriosopoulos, D., Andriosopoulos, K., & Hoque, H. (2013). Information disclosure, CEO overconfidence, and share buyback completion rates. Journal of Banking & Finance, 37(12), 5486-5499. DOI: https://doi.org/10.1016/j.jbankfin.2013.04.011
Baker, M., Ruback, R. S., & Wurgler, J. (2004). Behavioral corporate finance: A survey (No. w10863). National Bureau of Economic Research. DOI: https://doi.org/10.3386/w10863
Balsam, S., Haw, I. M., & Lilien, S. B. (1995). Mandated accounting changes and managerial discretion. Journal of Accounting and Economics, 20(1), 3-29. DOI: https://doi.org/10.1016/0165-4101(94)00374-E
Banerjee, S., Humphery-Jenner, M., & Nanda, V. (2013). Harnessing CEO overconfidence. UNSW Australian School of Business Research Paper.
Barber, B. M., & Odean, T. (2001). Boys will be boys: Gender, overconfidence, and common stock investment. Quarterly Journal of Economics, 261-292. DOI: https://doi.org/10.1162/003355301556400
Barros, L. A. B. D. C., & Da Silveira, A. D. M. (2009). Overconfidence, managerial optimism and the determinants of capital structure. Brazilian Review Finance, 6(3), 293-335. DOI: https://doi.org/10.12660/rbfin.v6n3.2008.1343
Barth, M. E., Landsman, W. R., & Lang, M. H. (2008). International accounting standards and accounting quality. Journal of Accounting Research, 46(3), 467-498. DOI: https://doi.org/10.1111/j.1475-679X.2008.00287.x
Ben-David, I., Graham, J. R., & Harvey, C. R. (2007). Managerial overconfidence and corporate policies (No. w13711). National Bureau of Economic Research. DOI: https://doi.org/10.3386/w13711
Bulgurcu, B. K. (2012). Application of TOPSIS technique for financial performance evaluation of technology firms in Istanbul stock exchange market. Procedia-Social and Behavioral Sciences, 62(24), 1033-1040. DOI: https://doi.org/10.1016/j.sbspro.2012.09.176
Cooper, A. C., Woo, C. Y., & Dunkelberg, W. C. (1988). Entrepreneurs' perceived chances for success. Journal of Business Venturing, 3(2), 97-108. DOI: https://doi.org/10.1016/0883-9026(88)90020-1
Dalton, D. R., & Daily, C. M. (2001). Director stock compensation: an invitation to a conspicuous conflict of interests?. Business Ethics Quarterly, 11(01), 89-108. DOI: https://doi.org/10.2307/3857871
De Bondt, W. F., & Thaler, R. H. (1995). Financial decision-making in markets and firms: A behavioral perspective. Handbooks in operations research and management science, 9, 385-410. DOI: https://doi.org/10.1016/S0927-0507(05)80057-X
Dechow, P. M., & Dichev, I. D. (2002). The quality of accruals and earnings: The role of accrual estimation errors. The Accounting Review, 77(s-1), 35-59. DOI: https://doi.org/10.2308/accr.2002.77.s-1.35
Dechow, P., Ge, W., & Schrand, C. (2010). Understanding earnings quality: A review of the proxies, their determinants and their consequences. Journal of Accounting and Economics, 50(2), 344-401. DOI: https://doi.org/10.1016/j.jacceco.2010.09.001
Deshmukh, S., Goel, A. M., & Howe, K. M. (2013). CEO overconfidence and dividend policy. Journal of Financial Intermediation, 22(3), 440-463. DOI: https://doi.org/10.1016/j.jfi.2013.02.003
Dittrich, D. A., Güth, W., & Maciejovsky, B. (2005). Overconfidence in investment decisions: An experimental approach. The European Journal of Finance, 11(6), 471-491. DOI: https://doi.org/10.1080/1351847042000255643
Doyle, J. T., Ge, W., & McVay, S. (2007). Accruals quality and internal control over financial reporting. The Accounting Review, 82(5), 1141-1170. DOI: https://doi.org/10.2308/accr.2007.82.5.1141
Dushnitsky, G. (2010). Entrepreneurial optimism in the market for technological inventions. Organization Science, 21(1), 150-167. DOI: https://doi.org/10.1287/orsc.1090.0454
Francis, J. R., Khurana, I. K., & Pereira, R. (2004). The role of accounting and auditing in corporate governance and the development of financial markets around the world. Asia-Pacific Journal of Accounting & Economics, 10(1), 1-30. DOI: https://doi.org/10.1080/16081625.2003.10510613
Gaio, C. (2010). The relative importance of firm and country characteristics for earnings quality around the world. European Accounting Review, 19(4), 693-738. DOI: https://doi.org/10.1080/09638180903384643
Gómez-Mejía, L. R., Haynes, K. T., Núñez-Nickel, M., Jacobson, K. L., & Moyano-Fuentes, J. (2007). Socioemotional wealth and business risks in family-controlled firms: Evidence from Spanish olive oil mills. Administrative Science Quarterly, 52(1), 106-137. DOI: https://doi.org/10.2189/asqu.52.1.106
Heaton, J. B. (2002). Managerial optimism and corporate finance. Financial management, 33-45. DOI: https://doi.org/10.2307/3666221
Hilary, G., & Hsu, C. (2011). Endogenous overconfidence in managerial forecasts. Journal of Accounting and Economics, 51(3), 300-313. DOI: https://doi.org/10.1016/j.jacceco.2011.01.002
Hmieleski, K. M., & Baron, R. A. (2009). Entrepreneurs' optimism and new venture performance: A social cognitive perspective. Academy of Management Journal, 52(3), 473-488. DOI: https://doi.org/10.5465/amj.2009.41330755
Hribar, P., Yang, H. (2015). CEO overconfidence and management forecasting. Contemporary Accounting Research, 33(1), 204-227. DOI: https://doi.org/10.1111/1911-3846.12144
Hsieh, T. S., Bedard, J. C., & Johnstone, K. M. (2014). CEO overconfidence and earnings management during shifting regulatory regimes. Journal of Business Finance & Accounting, 41(9-10), 1243-1268. DOI: https://doi.org/10.1111/jbfa.12089
Simon, M., & Houghton, S. M. (2003). The relationship between overconfidence and the introduction of risky products: Evidence from a field study. Academy of Management Journal, 46(2), 139-149. DOI: https://doi.org/10.2307/30040610
Jin, L., & Kothari, S. P. (2008). Effect of personal taxes on managers’ decisions to sell their stock. Journal of Accounting and Economics, 46(1), 23-46. DOI: https://doi.org/10.1016/j.jacceco.2008.05.002
Kang, S. H., & Sivaramakrishnan, K. (1995). Issues in testing earnings management and an instrumental variable approach. Journal of Accounting Research, 33(2), 353-367. DOI: https://doi.org/10.2307/2491492
Ko, K. J., & Huang, Z. J. (2007). Arrogance can be a virtue: Overconfidence, information acquisition, and market efficiency. Journal of Financial Economics, 84(2), 529-560. DOI: https://doi.org/10.1016/j.jfineco.2006.03.002
Labelle, R. (1990). Bond covenants and changes in accounting policy: Canadian evidence. Contemporary Accounting Research, 6(2), 677-698. DOI: https://doi.org/10.1111/j.1911-3846.1990.tb00781.x
Landier, A., & Thesmar, D. (2009). Financial contracting with optimistic entrepreneurs. Review of Financial Studies, 22(1), 117-150. DOI: https://doi.org/10.1093/rfs/hhn065
Lee, J. M. M., Hwang, B. H., & Chen, H. (2014). Behavioral Differences Between Founder CEOs and Professional CEOs: The Role of Overconfidence. In Academy of Management Proceedings, 1, 17214, Academy of Management. DOI: https://doi.org/10.5465/ambpp.2015.17214abstract
Li, I. C., & Hung, J. H. (2013). The moderating effects of family control on the relation between managerial overconfidence and earnings management. Review of Pacific Basin Financial Markets and Policies, 16(02). DOI: https://doi.org/10.1142/S0219091513500100
Lin, Y. H., Hu, S. Y., & Chen, M. S. (2005). Managerial optimism and corporate investment: Some empirical evidence from Taiwan. Pacific-Basin Finance Journal, 13(5), 523-546. DOI: https://doi.org/10.1016/j.pacfin.2004.12.003
Lowe, R. A., & Ziedonis, A. A. (2006). Overoptimism and the performance of entrepreneurial firms. Management Science, 52(2), 173-186. DOI: https://doi.org/10.1287/mnsc.1050.0482
Malmendier, U., & Tate, G. (2005). CEO overconfidence and corporate investment. The Journal of Finance, 60(6), 2661-2700. DOI: https://doi.org/10.1111/j.1540-6261.2005.00813.x
Malmendier, U., & Tate, G. (2008). Who makes acquisitions? CEO overconfidence and the market's reaction. Journal of Financial Economics, 89(1), 20-43. DOI: https://doi.org/10.1016/j.jfineco.2007.07.002
Malmendier, U., Tate, G., & Yan, J. (2011). Overconfidence and early?life experiences: the effect of managerial traits on corporate financial policies. The Journal of Finance, 66(5), 1687-1733. DOI: https://doi.org/10.1111/j.1540-6261.2011.01685.x
Malmquist, D. H. (1990). Efficient contracting and the choice of accounting method in the oil and gas industry. Journal of Accounting and Economics, 12(1), 173-205. DOI: https://doi.org/10.1016/0165-4101(90)90046-7
Martinez, A. L. (2008). Detectando Earnings Management no Brasil: Estimando os Accruals Discricionários. Revista de Contabilidade e Finanças da USP, 19(46), 7-17. DOI: https://doi.org/10.1590/S1519-70772008000100002
Martinez, A. L. (2013). Gerenciamento de resultados no Brasil: um survey da literatura. BBR-Brazilian Business Review, 10(4), 1-31. DOI: https://doi.org/10.15728/bbr.2013.10.4.1
Matsumoto, A. S., & Parreira, E. M. (2009). Uma pesquisa sobre o Gerenciamento de Resultados Contábeis: causas e conseqüências. Contabilidade, Gestão e Governança, 10(1).
Miller, D., Breton?Miller, L., & Scholnick, B. (2008). Stewardship vs. stagnation: An empirical comparison of small family and non?family businesses. Journal of Management Studies, 45(1), 51-78.
Minton, B. A., & Schrand, C. (1999). The impact of cash flow volatility on discretionary investment and the costs of debt and equity financing. Journal of Financial Economics, 54(3), 423-460. DOI: https://doi.org/10.1016/S0304-405X(99)00042-2
Nelson, T. (2003). The persistence of founder influence: Management, ownership, and performance effects at initial public offering. Strategic Management Journal, 24(8), 707-724. DOI: https://doi.org/10.1002/smj.328
Peterson, R. L. (2007). Inside the Investor's Brain, Wiley Trading, Hoboken, NJ.
Russo, J. E., & Schoemaker, P. J. (1992). Managing overconfidence. Sloan Management Review, 33(2), 7-17.
Santos, A. D., & Grateron, I. R. G. (2003). Contabilidade criativa e responsabilidade dos auditores. Revista Contabilidade & Finanças, 14(32), 07-22. DOI: https://doi.org/10.1590/S1519-70772003000200001
Schrand, C. M., & Zechman, S. L. (2012). Executive overconfidence and the slippery slope to financial misreporting. Journal of Accounting and Economics, 53(1), 311-329. DOI: https://doi.org/10.1016/j.jacceco.2011.09.001
Svenson, O. (1981). Are we all less risky and more skillful than our fellow drivers?. Acta Psychologica, 47(2), 143-148. DOI: https://doi.org/10.1016/0001-6918(81)90005-6
Taylor, S. E., & Brown, J. D. (1988). Illusion and well-being: a social psychological perspective on mental health. Psychological Bulletin, 103(2), 193. DOI: https://doi.org/10.1037/0033-2909.103.2.193
Thaler, R. H. (1999). The End of Behavioral Finance. Financial Analysts Journal, 55(6), 12-17. DOI: https://doi.org/10.2469/faj.v55.n6.2310
Watts, R. L., & Zimmerman, J. L. (1990). Positive accounting theory: a ten-year perspective. Accounting Review, 65(1), 131-156.
Weinstein, N. D. (1980). Unrealistic optimism about future life events. Journal of Personality and Social Psychology, 39(5), 806. DOI: https://doi.org/10.1037/0022-3514.39.5.806
Downloads
Published
How to Cite
Issue
Section
License
The copyright for articles published in this journal belongs to the author (s), with first publication rights assigned to Revista Catarinense da Ciência Contábil. Due to appearing in this publicly accessible journal, articles are free to use, with mandatory recognition of the original authorship and initial publication in this magazine and for educational and non-commercial applications. The magazine chose to use published works for non-commercial purposes, including the right to submit or work for publicly accessible databases. The content of published articles is the sole and exclusive responsibility of the authors. - The author (s) authorize (s) a publication of the article in the journal; - The author (s) guarantee (s) that a contribution is original and unpublished and that it is not being evaluated in another magazine (s); - A magazine is not responsible for the opinions, ideas and concepts emitted in the texts, for the full responsibility of the author (s); - It is reserved to the editors or the right to make textual adjustments and to adjust the article to the publication rules.
This work is licensed under a Creative Commons Atribuição-NãoComercial-CompartilhaIgual 4.0 Internacional.
