Chief financial officer overconfidence and earnings management

Qiao, L, Adegbite, E and Nguyen, TH ORCID: https://orcid.org/0000-0001-7170-5882, 2023. Chief financial officer overconfidence and earnings management. Accounting Forum. ISSN 0155-9982

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Abstract

This study explores the relationship between overconfident Chief Financial Officers (CFOs) and earnings management. Through the lens of upper echelons and overconfidence theories, and using a large sample of 14,156 observations of US firms from 1999 to 2021 inclusive, our study finds that overconfident CFOs are positively associated with earnings management. We show that overconfident CFOs use earnings management to reduce earnings volatility, given that a smooth performance can release their financing pressure. In doing this, we rule out another possible explanation of overconfident CFOs engaging in earnings management to pursue high compensation. Our findings pass a series of robustness tests, including entropy balancing, the Difference-in-Differences test based on the propensity score matching sample (PSM-DID), and alternative measures of main variables. Our study provides a new determinant of earnings management that has more explanatory power than CFO demographic traits – i.e. CFO cognitive biases. Our findings nonetheless show the “bright” side of CFO overconfidence, helping investors, regulators, and policymakers understand overconfident CFOs’ financial reporting decisions.

Item Type:	Journal article
Publication Title:	Accounting Forum
Creators:	Qiao, L., Adegbite, E. and Nguyen, T.H.
Publisher:	Routledge
Date:	28 April 2023
ISSN:	0155-9982
Identifiers:	Number Type 10.1080/01559982.2023.2196045 DOI 1864577 Other
Rights:	This is an Open Access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives License (http://creativecommons.org/licenses/by-nc-nd/4.0/), which permits non-commercial re-use, distribution, and reproduction in any medium, provided the original work is properly cited, and is not altered, transformed, or built upon in any way. The terms on which this article has been published allow the posting of the Accepted Manuscript in a repository by the author(s) or with their consent.
Divisions:	Schools > Nottingham Business School
Record created by:	Jonathan Gallacher
Date Added:	21 Feb 2024 13:12
Last Modified:	21 Feb 2024 13:12
URI:	https://irep.ntu.ac.uk/id/eprint/50906

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