The Managerial Overconfidence and Book－Tax Difference Information

This study examines whether there is difference in the quality of reported income depending on the managerial overconfidence using Book－Tax Difference (hereafter, BTD) information. We measure managerial overconfidence by the methodologies invented by Ahmed and Dullman(2013) and Schrand and Zechman(2012) while BTD is measured by multiple methodologies. The sample of this study is 2,699 firm－year observations for non－financial companies whose fiscal year ended on December listed on the Korea Exchange for the period from 2013 to 2018. The empirical analysis results are as follows. Firms with greater managerial overconfidence have greater BTD, implying that greater managerial overconfidence results in lower quality of reported income. These results was also the same in additional analysis using the absolute value of BTD. And the analysis utilizing BTD variability usually showed that Firms with greater managerial overconfidence have greater BTD variability. This result suggests that overconfident managers with self－judgment are more likely to intervene in the accounting process in which managers are not supposed to involved. This study contributes to the literature by verifying the relationship between managerial overconfidence and the quality of reported income using the BTD information. In addition, the result that firms with overconfident managers tend to have lower