Qiao, L. orcid.org/0000-0002-3810-2614, Adegbite, E. orcid.org/0000-0002-7370-2818 and Nguyen, T.H. (2023) Chief financial officer overconfidence and earnings management. Accounting Forum. ISSN 0155-9982
Abstract
This study explores the relationship between overconfident Chief Financial Officers (CFOs) and earnings management. Through the lens of upper echelons and overconfidence theories, and using a large sample of 14,156 observations of US firms from 1999 to 2021 inclusive, our study finds that overconfident CFOs are positively associated with earnings management. We show that overconfident CFOs use earnings management to reduce earnings volatility, given that a smooth performance can release their financing pressure. In doing this, we rule out another possible explanation of overconfident CFOs engaging in earnings management to pursue high compensation. Our findings pass a series of robustness tests, including entropy balancing, the Difference-in-Differences test based on the propensity score matching sample (PSM-DID), and alternative measures of main variables. Our study provides a new determinant of earnings management that has more explanatory power than CFO demographic traits – i.e. CFO cognitive biases. Our findings nonetheless show the “bright” side of CFO overconfidence, helping investors, regulators, and policymakers understand overconfident CFOs’ financial reporting decisions.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2023 The Author(s). This is an open access article under the terms of the Creative Commons Attribution License (CC-BY 4.0), which permits unrestricted use, distribution and reproduction in any medium, provided the original work is properly cited. |
Keywords: | CFO overconfidence, earnings management, overconfidence theory, upper echelons theory |
Dates: |
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Institution: | The University of Leeds |
Academic Units: | The University of Leeds > Faculty of Business (Leeds) > Accounting & Finance Division (LUBS) (Leeds) |
Depositing User: | Symplectic Publications |
Date Deposited: | 20 Nov 2023 10:33 |
Last Modified: | 20 Nov 2023 10:33 |
Status: | Published online |
Publisher: | Taylor and Francis Group |
Identification Number: | 10.1080/01559982.2023.2196045 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:205484 |
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