A Study On Earnings Management Constraint Model Based On Managerial Overconfidence And Overoptimism

The accounting information disclosure is a basis of capital market operation, the quality of information disclosure determines whether the capital market development is healthy and stable or not. However, in recent years, earnings management widely exists in the capital market of China. The activity of earnings management made accounting information cannot objectively and fairly reflect the state of business enterprises, misled investors and regulators in decision-making and finally resulted in a serious impact on the effective allocation of social resources. There are lots of factors which can have impact on earnings management. Based on the dual principal-agent relations among minority shareholders, controlling shareholders and managers, this dissertation studied the variation of earnings management in the context of managerial bounded rationality, and then created earnings management constraint model from the perspective of overconfident and over optimism. The main conclusions of the dissertation are as following:(1) The evaluation model on degree of managerial overconfidence and overoptimism was constructed based on matching relations between manager investment activities and macroeconomic conditions.Referencing research results of economics and psychology, the dissertation defined overconfidence and overoptimism according to cognitive bias of people on their own capabilities and external environment. Based on the definitions, using investment activities as external behavior of managers'cognition, using macroeconomic conditions as frame of reference to determine whether the cognitive bias existed, the dissertation constructed evaluation model on degree of managerial overconfidence and overoptimism. The model revealed economic consequences of overconfidence and overoptimism impacting managers' behavior, making investors can conduct a continuous evaluation on bounded rationality conditions of managers.(2) An empirical study was conducted to inspect impact of manager overconfidence and overoptimism on earnings management.The dissertation used year-on-year GDP growth rate as proxy variable of China's macroeconomic conditions, used the down then up process of China's macroeconomic cycle during 2008-2009 as time window to evaluate degree of managerial overconfidence and overoptimism of listed companies.Based on this evaluation, using regression analysis, the dissertation indicated that the degree of overconfidence and overoptimism had significant positive correlation with positive earnings management and had significant negative correlation with absolute value of negative earnings management.(3) The Nash equilibrium model between managers and shareholders was constructed based on dual principal-agent relations among minority shareholders, controlling shareholders and managers.The dissertation constructed revenue optimization model using expectations yield function of managers and shareholders. And then the dissertation developed a risk control model when getting the necessary and sufficient condition for risk minimization on the premise of ensuring revenue maximization. Based on the revenue optimization model and the risk control model, the dissertation created simultaneous equations and then constructed Nash equilibrium model between managers and shareholders. According to the Nash equilibrium model, the dissertation researched variation of Nash equilibrium solution under all kinds of degree of behavior when impacted by different factors. This study enriched content of dual principal-agent relations theory.(4) Earnings management constraint model in the context of managerial overconfidence and overoptimism was developed by adjusting structure of Nash equilibrium model according to asymmetric information caused by overconfidence and overoptimism of managers.The dissertation used misjudgment of managers on volatility risk of assets gross profit ratio and macroeconomic conditions as proxy variable, and adjusted structure of Nash equilibrium model according to asymmetric information caused by managerial overconfidence and overoptimism to study variation of earnings management of bounded rational managers. Based on this, this dissertation developed earnings management constraint model in the context of managerial overconfidence and overoptimism. The model not only expanded dual principal-agent relations theory to conditions of bounded rational manager, but also enriched studies on earnings management impact factors and constrained decision-making.