Managers' Overconfident, Risk Preference And Earnings Management

On the basis of traditional finance, Behavioral Finance cites principles of psychology and offers brand new visual angle and theories to solve financial science problems.With regards to Behavioral Finance, this paper combined elements of individual characteristics and earnings management of listed companies. In addition, it examined the relationship between risk preference levels of managers who are overconfidence or in appropriate levels of confidence and their firms'earnings management level. Furthermore, in terms of the problem that whether the managers overweight their stocks in the continuous three years, samples were grouped into two parts, which are overconfidence or in moderate confidence. There is a strong relationship between managers'earnings and their Risk Preference levels and at the same time, risk preference levels will be affected by the factors of individual characteristics. Therefore, this paper developed potential Risk Preference index——PRPI on basis of individual characteristics and to indicate managers'risk appetite index, two samples were used to do panel data regression to obtain proxy variables. Last but not least, these two samples were put into fixed JONES Model to implement panel data regression of management level of managers'earnings. In conclusion, firstly, managers'risk preference levels will be influenced by factors of individual characteristics such as age, gender, term of office, revenue structure and proportion of shares they hold. Secondly, in terms of managers who are in moderate confidence, there is a positive relationship between their risk preference levels and earnings management levels. Thirdly, in contrast, risk preference levels and earnings management levels are in negative relationship since managers are overconfidence.