A Study On The Mechanism Of CEO Overconfidence On Corporate Financial Restatement Behaviour

In the context of deepening reform of China’s economic system and the prosperous development of the capital market,financial restatements by listed companies are frequent,and the immaturity of the system and regulatory "puddles" make financial restatements an important means for listed companies to manipulate their surplus,and some even use them to commit financial fraud.The repeated financial restatements are not only detrimental to the value of the company,but also seriously infringe on the rights and interests of investors and other stakeholders involved,disrupting the order of the capital market and affecting the healthy growth of China’s economy,and how to reduce the occurrence of corporate financial restatements has become the focus of academic discussion.According to the top echelon theory,human behaviour is a function of their cognition and experience,and the CEO,as the core leader of governance,has a significantly higher level of overconfidence than the average person;therefore,whether and how CEO overconfidence psychology affects corporate financial restatement behaviour is the main question explored in this paper.In addition,the board of directors is an important part of performing supervisory duties under the principal-agent framework,and with the increasing social status of women in the context of feminist ideological emancipation,it has become a trend for more and more women to join the board of directors in corporate management.Therefore,this paper introduces female directors as a moderating variable to systematically analyse the effect and mechanism of female directors’influence on CEO overconfidence and corporate financial restatement behaviour.Based on the top echelon theory,principal-agent theory,information asymmetry theory and the theory of gender differences in managers’ behaviour,this paper takes the 2011-2020 non-financial market listed companies in China as the research object,and after screening and processing the samples,it uses descriptive statistical analysis,correlation analysis,mean difference t-test and regression analysis,as well as replacing the main variable measures,the lagged one-period independent variables,propensity score matching,etc.A series of robustness and endogeneity tests were conducted,and the findings indicated that:(1)CEO overconfidence psychology was significantly and positively related to corporate financial restatement behaviour,i.e.the higher the level of CEO overconfidence,the higher the probability of financial restatement occurring in the company.(2)Female directors who create a scale effect can play a substantial role.The study found that when there are no less than three women on the board of directors,women directors are able to break away from tokenism" and participate effectively in corporate governance,thus curbing the positive relationship between CEO overconfidence and corporate financial restatement.(3)Women directors in different positions have different effects in moderating CEO overconfidence and corporate financial restatement.A subgroup test based on whether or not female directors are employed in different positions shows that CEO overconfidence is not significantly associated with financial restatement in companies with female non-executive directors or female independent directors,i.e.overconfident CEOs are less likely to engage in financial restatement.For female executive directors,on the other hand,CEO overconfidence exacerbates the likelihood of financial restatements occurring in both the appointed and non-appointed groups,with a limited monitoring effect of female executive directors.(4)Further group tests found that female directors with financial independence and financial backgrounds as well as holding key positions were effective in curbing financial restatement behaviour of overconfident CEOs.This paper examines corporate financial restatement behaviour from the perspective of the CEO,the subject of corporate decision-making.On the one hand,it opens up a unique perspective on the motivations for financial restatement at the individual level,and on the other hand,it innovatively examines the moderating role of female directors in the process of CEO overconfidence affecting financial restatement,and The study also analyses the heterogeneity of female directors.Therefore,this study has important implications and practical guidance for optimising internal governance mechanisms,rationalising the role of female directors and improving the financial restatement system.