Research On The Relationship Between Managerial Overconfidence And Earnings Management

Financial reports disclosed by listed companies are important reference for investors, and its quality directly affected the healthy development of the capital market. China’s market economy is not mature, and corporate governance mechanism is not perfect, and earnings management behavior of listed company often occurs, harming the interests of all stakeholders, undermining the efficient allocation of capital markets. Theorists and practitioners concerned about the earnings management problem and it is very urgent to constraint the earnings management, then supervise it.Based on behavioral finance theory, this paper selected listed companies in China A-share market in2009-2011as the research sample, and took into account the relationship between managerial overconfidence and earnings management.Then, we examined changes of the relationship between managerial overconfidence and earnings management under perfect board governance group and imperfect board governance group.The research results are listed as followed. First of all, the relationship between managerial overconfidence and earnings management is positive, the more the managers are overconfident, the higher the degree of earnings management will make. Secondly, perfect board governance structure will affect the relationship between managerial overconfidence and earnings management:compared with the smaller size of the board of directors of listed companies, the larger size of the board of directors of listed companies can reduce the earnings management level induced by managerial overconfidence; Compared with the lower independence of the board of directors of listed companies, the higher independence of the board of directors of listed companies can reduce the earnings management level induced by managerial overconfidence;compared with the CEO duality of the board of directors of listed companies, board of directors which its chairman and general manager are separate can reduce the earnings management level induced by managerial overconfidence;the size of board meeting frequency cannot reduce the earnings management level due to managerial overconfidence.