An Empirical Study On Managerial Overconfidence And Earnings Management

Earnings management is not a simple accounting behavior, but the result of multi-interest conflicts, so its nature is the problem of corporate governance, of which the validity is due to influence the company's earnings management. While the traditional studies are based on the premise of"rationality", and weak in the area of manager's psychological mechanism, more and more studies find that managers are overconfident when making decisions. So does the psychological inclination influence the company's earnings management? Are the managers in our country also overconfident, when the corporate governance is in the perfect stage and manager market is far from mature in our country? Does this psychological incline influence the earnings management? If so, how does it come in to effect? All of these questions need deep research.Based on the research result of earnings management and overconfidence in and out, the thesis combines related theory of behavior economics, system economics and cognition psychology to give a full theoretical analysis, and then give a full empirical analysis on the panel data of non-finance list companies in Shenzhen and Shanghai capital market from 2003 to 2005 which perform stock stimulus. The results show: managers with shot-term overconfidence are inclined to positive earnings management, and managers with long-term overconfidence are inclined to negative earnings management. It indicates that managers with long-term overconfidence care more about the stable accumulation of companies'future value, so they would rather to desert personal income brought by presenting high profit, and to smooth the profit. Furthermore the results documents that corporate governance structure and manager's personal character influence the real effect of the action. When independent directors are in effect, they can promote managers to be long-term overconfident, and keep them from short term, to make sure manager's objects in compliance with company's object. And the managers with high education are also seems to be both shot-term and long-term overconfident.The main innovations are: (1) give a deep theoretical analysis on earnings management with a combination of cognition psychology, behavior economics and system economics; (2) try to measure managers'psychology such as overconfidence and personal character for empirical study, and classify overconfidence to shot-term one and long-term one, and do the research separately.