The Empirical Research On The Impact Of Managerial Overconfidence On Accounting Conservatism

Accounting conservatism is key feature to financial reporting information quality,reflecting claims from investors, creditors and other stakeholders. Traditional researches madeassumptions that entrepreneurs were rational. However, behavioral finance theory shows thatmost people tend to be overconfident, entrepreneurs are more prone to overconfidence. Due toentrepreneurs overconfidence, negative impacts of irrational behavior on corporate investmentstrategy, financing strategy, dividend policy and acquisitions may occur.On the basis of a literature review of papers on entrepreneurs overconfidence andcorporate investment strategy, financing strategy, dividend policy, this paper studies the impactof management overconfidence on accounting conditional conservatism and unconditionalconservatism. This paper used managers of A-share listed companies as research subjects,based on previous literature reference to company managers overconfidence irrationalbehavior, to explore whether managerial overconfidence will harm accounting conditionalconservatism and unconditional conservatism, and evaluate whether ownership property andexternal regulatory would play a role in those relations, and then propose hypotheses. Multiplelinear regression empirically tests relationship between the management of China’s listedcompanies and accounting conditional overconfidence conservatism and unconditionalconservatism. Empirical study shows that overconfident management significantly reduces thecorporate financial accounting robustness and conservatism. Different ownership propertyshows different level of these impacts. Non-state-owned holding companies show morenegative effect than the state-owned holding company; strict external supervision cansignificantly weaken overconfidence on corporate financial management accountingconditional and unconditional conservatism.Study shows that, for Chinese listed companies, overconfident management will have animpact on accounting conservatism, strict supervision by SASAC supervision and otherexternal supervision can suppress this negative effect. Those findings enrich the theory of self-confidence and provide guidance for future accounting supervision.