A Study On The Impact Of Managerial Overconfidence On Earnings Management Of Enterprises

Domestic and foreign scholars never stopped studying earnings management. However, traditional research which were built on the basis of the "rational economic man" hypothesis and based on the external market environment and internal corporate governance point of view lack research for managers’psychological characteristics, which results in governing earnings management behavior ineffective. With the emergence and development of behavioral finance, more and more studies show that managers are not entirely rational when making decisions. In fact, the structure of corporate governance in our country is in the perfecting stage. Manager market is far from mature. So the phenomenon of managers’overconfidence in enterprises is likely to be more prominent. However, the managers’ overconfidence psychological makes them easy to overestimate future earnings, underestimate the financial risk of enterprises and lack rational thinking in the process of information processing. Then the study of whether managers’overconfidence will affect the earnings management behavior is requisite.On the basis of summing up the domestic and foreign research achievement on earnings management and overconfidence, combined with behavioral finance theory to analyze, this paper takes A shares non-financial listed companies on the Shanghai Stock Exchange of2010and2011as samples. It evaluates managers’overconfidence with their personal characteristics and external performance. It uses the modified Jones model to measure earnings management. Then it takes earnings management as dependent variable and managerial overconfidence as explanatory variable. Besides, it selects control variables which can affect the enterprises’ earnings management. At last, it establishes the regression model and tests the relationship between managerial overconfidence and earnings management with the multiple regression method.The empirical study shows that managerial overconfidence has significantly positive relationship with earnings management, that is, the degree of managerial overconfidence is higher, the phenomenon of earnings management is more likely to happen. In addition, we found that, compared with negative earnings management, managers prefer positive earnings management. Compared with moderately confident managers, overconfident managers are more likely to manage earnings to positive direction. Finally, according to the analysis of empirical research we propose suggestions for managerial overconfidence.