Does accounting conservatism mitigate the shortcomings of CEO overconfidence?

Hsu, Charles, Novoselov, Kirill E. and Wang, Rencheng (2017) Does accounting conservatism mitigate the shortcomings of CEO overconfidence?. The Accounting Review, . doi:10.2308/accr-51718


Author Hsu, Charles
Novoselov, Kirill E.
Wang, Rencheng
Title Does accounting conservatism mitigate the shortcomings of CEO overconfidence?
Journal name The Accounting Review   Check publisher's open access policy
ISSN 1558-7967
0001-4826
Publication date 2017-02-17
Year available 2017
Sub-type Article (original research)
DOI 10.2308/accr-51718
Open Access Status Not yet assessed
Place of publication Sarasota, FL United States
Publisher American Accounting Association
Collection year 2018
Language eng
Abstract Overconfident CEOs are more willing to initiate investment projects that require experimentation, yet tend to defer responding to the bad news when the project is not performing as planned. Accounting conservatism accelerates the recognition of the bad news and its dissemination to gatekeepers, making it more likely that the CEO will acknowledge the problem earlier and start searching for solutions. Therefore, firms where both characteristics-CEO overconfidence and accounting conservatism-are present should perform better. Our empirical tests confirm this prediction: firms that practice conservative accounting and are run by overconfident CEOs exhibit better cash flow performance. Our results continue to hold in a variety of settings, including market reactions to acquisitions, cash flow downside risk, and analyst following. Further, the joint positive effect of CEO overconfidence and accounting conservatism on firm performance is stronger in high-uncertainty environments and in firms facing less stringent financing constraints, consistent with theoretical predictions.
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status Non-UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: HERDC Pre-Audit
UQ Business School Publications
 
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Created: Wed, 15 Mar 2017, 23:39:34 EST by Rencheng Wang on behalf of UQ Business School