Chief financial officer overconfidence and earnings management

Qiao, Lu; Adegbite, Emmanuel; Nguyen, Tam

doi:10.1080/01559982.2023.2196045

Cited by 7 publications

(2 citation statements)

References 92 publications

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“…As the mechanism through which the conflict of interests 1 3 between principals and agents could be mitigated, corporate governance traditionally refers to equity holders' ability to influence management's decision making through the board of directors (Nini et al 2012). A number of studies have investigated the impacts of board characteristics on earnings management, including board independence (e.g., Chen et al 2015;Cornett et al 2009;Jaggi et al 2009), board compensation (e.g., Cornett et al 2009, board size (e.g., Ching et al 2006;Xie et al 2003), board duality (e.g., Ghosh et al 2010), board gender diversity (e.g., Lai et al 2023), audit committee (e.g., Ghosh et al 2010;Klein 2002;Sun et al 2011;Xie et al 2003), ownership structure (e.g., Ching et al 2006;Bao and Lewellyn 2017;Ding et al 2007;Kim and Yi 2006;Sáenz González and García-Meca 2014) and institutional investors (e.g., Hadani et al 2011;Sáenz González and García-Meca 2014;Gunny and Pollard 2023), Senior managers(e.g., Qiao et al 2023). However, how creditors could affect firms' earnings management has been ignored in the literature, as the prevailing view of corporate governance is that creditors play a very limited role in influencing the decision making of firms unless there is a payment default (Nini et al 2012;Roberts and Sufi 2009b).…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Bank intervention and firms’ earnings management: evidence from debt covenant violations

Huang,

Chen,

Liu

2024

Rev Quant Finan Acc

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Earnings management has long been one of the main concerns in accounting and management literature, and the extent to which corporate governance mechanisms can discipline management behaviour and prevent earnings management has attracted increasing interest among policy makers and academic researchers. Differing from previous corporate governance literature that focuses mainly on the board and auditors, we explore the role of creditors in corporate governance. In particular, we examine the effect of bank intervention on earnings management via the lens of debt covenant violations, where control rights are transferred to creditors (banks). Using a Difference-in-Difference approach, we find that firms reduce both their accruals-based and real earnings management following debt covenant violations. The negative effect on earnings management is more prominent when banks possess greater bargaining and monitoring power and when firms are more financially constrained. By identifying a specific channel through which debt providers influence corporate financial reporting, our findings suggest that creditors can play an important role in governing organisations and disciplining management behaviour.

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Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Bank intervention and firms’ earnings management: evidence from debt covenant violations

Huang,

Chen,

Liu

2024

Rev Quant Finan Acc

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“…In other words, CEOs tend to internalize social acclaim related to star CEOs, heightening their confidence (Hayward et al, 2004). This increased confidence reinforces positive self-potency (Adam et al, 2015;Qiao et al, 2023). Although participating in ethical activities such as ESG may have many benefits, such as improving corporate legitimacy and reputation (Li, Gong, et al, 2018), they can also bring challenges to the company (Di Giuli & Kostovetsky, 2014;Van Marrewijk, 2003;Yuan et al, 2019).…”

Section: Extreme Confidence Mechanismmentioning

confidence: 99%

Star CEOs and ESG performance in China: An integrated view of role identity and role constraints logics

Huang

Wang

et al. 2023

Business Ethics Env & Resp

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This study seeks to shed light on the effect of star CEOs on the environmental, social, and governance (ESG) performance of Chinese firms. Relying on the theoretical perspective of role identity and role constraints, we analyze data from 1222 Chinese firms listed on the Shanghai and Shenzhen Stock Exchanges from 2006 to 2019. The results analyzed using the ordinary least squares estimate method reveal a positive effect of star CEOs' extreme confidence and legitimacy pressure mechanisms on ESG performance. We also find that this positive relationship is negatively moderated by higher organizational slack but strengthened by a lower level of regional marketization, as the degree of firms' dependence on external stakeholders' resources differs significantly. Additionally, this study finds that ESG activities are less likely to be associated with firm performance if star CEOs pursue them to satisfy their need for star status. These findings supplement the early tests of the influence mechanism of star CEOs on organization‐level results and expand the context discussion of role identity and role constraints theory in the Chinese institutional environment.

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CFO overconfidence and conditional accounting conservatism

Qiao,

Adegbite,

Nguyen

2023

Rev Quant Finan Acc

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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.

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Chief financial officer overconfidence and earnings management

Cited by 7 publications

References 92 publications

Bank intervention and firms’ earnings management: evidence from debt covenant violations

Bank intervention and firms’ earnings management: evidence from debt covenant violations

Star CEOs and ESG performance in China: An integrated view of role identity and role constraints logics

CFO overconfidence and conditional accounting conservatism

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