Managerial Overconfidence,Internal Control Quality And Cost Stickiness

Management accounting is a crucial part of the accounting discipline system.With the continuous improvement of the accounting discipline system and the increasingly prominent role of management accounting in the enterprise,the relevant pertinent research has been increasing and the research content has become more diverse and indepth.The traditional cost behavior model mainly considers the fixed cost and the variable cost with the change of the business volume when calculating the total cost of the enterprise.However,as the research deepens,scholars have found that the corresponding rate of change in the cost caused by the increase in business volume is significantly higher than the rate of change in the proportion of costs when the volume of business is decreasing.This asymmetrical change between cost and business volume has been cited by academics.They are called "cost stickiness." The existence of cost stickiness reflects the different level of the company's cost management.To some extent,the irrational behavior of the manager who is the principle part of cost management behavior will inevitably affect the stickiness of the firm's cost.However,at present,the research on influential factors of cost stickiness in academic community mostly focuses on objective factors such as company characteristics and business environment.There are few studies on the subjective factors of managerial irrational behavior.Therefore,from the perspective of behavioral finance,this paper studies the relationship between managers' overconfidence and cost stickiness.On this basis,the governance mechanism of internal control is further introduced to study whether there is a difference in the effect of managers' overconfidence on corporate cost stickiness under different internal control quality.At the same time,considering that the state-owned enterprises in China are more rigorous in their assessment of the principle,it may mitigate the influence of managers' overconfidence on cost stickiness.This paper further divides the sample into state-owned and non-state-owned company samples.The article takes China's 2011-2016 A-share listed company as a research sample,analyzing and demonstrating the three hypotheses that the paper will verify.The following conclusions are mainly obtained through empirical research:First,managers' overconfidence behavior aggravates the cost stickiness of companies.Overconfident managers will overestimate their abilities and be overly optimistic about future sales.Even facing a decline in sales,they believe sales will pick up in the future.On the other hand,considering that reducing current resources will result in corresponding adjustment costs and overconfident managers will be subject to maintain the current scale of resources,which will increase the company's cost stickiness.At the same time,because managers are overconfident in their judgment ability,they believe that their expectations for continued sales growth in the future,so that when sales decline,managers will still maintain or even increase investment in resources,which intensified still Cost stickiness.Second,it is more obvious that the positive correlation between overconfidence of managers and stickiness of corporate costs in non-state-owned enterprises.In stateowned enterprises,this relationship no longer exists.It shows that the state-owned nature of enterprises restricts the irrational behavior of managers to some extent.In China,performance appraisals of principle of state-owned enterprises adopt an assessment system that combines annual assessments with term assessments,results assessments and process evaluations,and assessment results linked to rewards and punishments.The relevant profit indicators also have a very high weight in the assessment indicators.Therefore,in the face of profit-centric performance appraisal system,and the appraisal is directly related to the manager's salary and position promotion.In this case,business managers will make more rational cost decisions and do their best to control the cost of related costs,in order to obtain better assessment results.Third,high-quality internal controls can weaken the positive impact of manager overconfidence on cost stickiness.Under low-quality internal control,overconfidence of managers contributes to the stickiness of corporate cost.Managers' overconfidence enhances the company's cost stickiness,which seriously hinders the improvement of corporate resource allocation efficiency.Effective internal control can relieve the agency problem of the company to a certain extent,reducing the self-interest behavior of managers and the occurrence of irrational decisions.At the same time,high-quality internal control can supervise and correct the deviations of managers' decision-making,and can restrain the opportunist behavior of managers to some extent.In general,the main contribution of the paper is that analyzes the influence of managers' overconfidence on corporate cost stickiness from the perspective of managers' individual behaviors,and helps companies in managerial incentives and improves managers' performance evaluation system.The inspection of internal control will help enterprises to attach importance to the construction and implementation of the internal control system.