The Influence of Managerial Overconfidence on Earnings Management

[Purpose] The purpose of this study is to investigate the influence of managerial overconfidence on earnings management. [Methodology] We use a measure of managerial overconfidence from investment level－based measure. We measure earnings management four ways including the modified Jones model (Dechow et al., 1995), performance matched discretionary accrual model (Kothrai et al., 2005), Roychowdury model (Roychowdury, 2006) and Cohen model (Cohen et al., 2008). We employ OLS model to test the association between managerial overconfidence and earnings management. [Findings] We find that managerial overconfidence significantly and positively influence accrual earnings management and real earnings management respectively. [Implications] While there are many researches on earnings management motivation we employ behavioral finance research and explore earnings management from the irrational behavior dimension unlike the prior literature.