CFO overconfidence and conditional accounting conservatism

Qiao, L, Adegbite, E and Nguyen, TH ORCID: https://orcid.org/0000-0001-7170-5882, 2024. CFO overconfidence and conditional accounting conservatism. Review of Quantitative Finance and Accounting, 62 (1), pp. 1-37. ISSN 0924-865X

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Abstract

This study investigates the association between Chief Financial Officers (CFOs) overconfidence and conditional accounting conservatism. Relying on upper echelons and overconfidence theories and based on a large sample of US-listed firms’ data from 1992 to 2019 (21,626 firm-year observations), we find a statistically and economically significant negative relationship between CFO overconfidence and conditional accounting conservatism, suggesting that overconfident CFOs tend to diminish conditional accounting conservatism. These findings persist in a series of robustness tests. In the mechanism analysis, we predict that overconfident CFOs aim to convey private information by reducing conditional accounting conservatism. We prove this conjecture by observing that overconfident CFOs who adopt lower levels of conditional accounting conservatism increase earnings informativeness (i.e., the amount of information about future cash flows or earnings contained in current stock returns) and reduce their precautionary incentives to save cash. We further rule out another mechanism (i.e. compensation concerns) that may motivate overconfident CFOs to reduce conditional accounting conservatism. Moreover, we show that overconfident CFOs with higher powers are more able to minimize conditional accounting conservatism. Our study highlights the significance and motivation of overconfident CFOs in determining asymmetric recognition of good and bad news.

Item Type:	Journal article
Publication Title:	Review of Quantitative Finance and Accounting
Creators:	Qiao, L., Adegbite, E. and Nguyen, T.H.
Publisher:	Springer
Date:	January 2024
Volume:	62
Number:	1
ISSN:	0924-865X
Identifiers:	Number Type 10.1007/s11156-023-01188-7 DOI 1859342 Other
Rights:	This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article's Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article's Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/.
Divisions:	Schools > Nottingham Business School
Record created by:	Jonathan Gallacher
Date Added:	07 Feb 2024 16:09
Last Modified:	21 Feb 2024 11:39
URI:	https://irep.ntu.ac.uk/id/eprint/50818

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