경영자 과신성향과 재무보고의 질의 관계, 그리고 기업지배구조의 효과: ESG 자료를 중심으로

This paper investigates whether the impact of managerial overconfidence on low-quality of financial reporting (i.e., assessed by accruals quality). One of the most important functions that corporate governance can play is in ensuring the quality of the financial reporting process (Cohen 2004). Hence, this paper also investigates the extent to which corporate governance attributes that are intended to mitigate managerial overconfidence affect firms’ financial reporting quality. Previous literature has documented that overconfidence-related personal traits of CEOs could affect companies’ tax reporting policy, accounting conservatism, and earnings management behavior (i.e., discretional accruals or/and real earnings management). For example, Prior studies suggest that firms with overconfident CEOs avoid more tax (Chyz et al. 2015), less conservative accounting policies (Ahmed and Duellman 2013), and more likely to engage in earnings management behaviors (Hsieh et al. 2014). Further, Schrand and Zechman (2012) find that firms with overconfident CEOs are more likely to have financial misstatements. However, there is little research that directly examines whether (or how) managerial overconfidence affects accruals quality, a commonly used proxy for financial reporting quality. Thus, this study will fill the research gap by examining the relationships between managerial overconfidence and accruals quality as well as its link with corporate governance mechanisms and its impact on accruals quality. In our tests, following Francis et al. (2005), our measure of accruals quality (hereafter AQ) used proxy for financial reporting quality is based on both the standard deviation of residuals and the absolute value of residuals from firm-specific regressions of changes in working capital accruals on lagged, current, and future cash flows from operations. We also use the ESG (environment responsibility, social responsibility, and governance) evaluation grade data announced by the KCGS (Korean Corporate Governance Service) as a proxy for corporate governance. Following the methodology of Kim et al. (2016) and Park and Kim (2020), we use combined measurement as CEO overconfid ence, it takes the value of one if the firm meets the requirements of at least three of seven criteria are based on prior research and zero otherwise. The sample for our main analysis is based on KCGS d ata such as existing the ESG (E, S, G) evaluation grade between 2011 and 2018. The main sample includes 3,940 firm-year observations with firms listed on Korea stock exchange. We indicate three key findings. First, we find that CEO overconfidence is positively associated with low-quality accruals (AQ). This results suggest that firms with overconfident CEOs significantly lead to damage financial reporting quality. Second, we find that a negative and significant interaction of CEO overconfid ence and ESG evaluation grad e on firms’ accruals quality (AQ). This results imply that good corporate governance mechanism in to safeguard the quality of financial reporting by monitoring of managers and weaken the association between CEO overconfidence and low-quality accruals. In other words, this findings indicate that good corporate governance mechanisms is more effective monitors of the financial reporting process, such as improves decision-making by overconfident CEOs, leads to high-quality of financial reporting. Lastly, in our additional tests, using interaction terms with E (environment responsibility), S (social responsibility), G (governance) evaluation grade variables respectively, we find qualitatively similar results in all sector. Collectively, our results provide yield a more nuanced understanding of how managerial overconfidence and certain corporate governance mechanisms are related to the level of financial reporting quality. Specifically, our results suggest that good corporate governance characteristics may have lead to improved financial reporting and transparency, even that there is exist firms with overconfident CEOs more aggressively engage in earnings management than other firms. Therefore, good corporate governance enhance financial reporting quality. The main contribution of this study to the existing literature is that, to our knowledge, it is the first study to examine the association between CEO overconfidence and accruals quality and, as well as its link with corporate governance and its impact on financial reporting quality. Therefore, we argue that the findings of this study represent an important complement to the prior literature on overconfidence and accounting quality or/and corporate governance, and we also provide new evidence that overconfidence and its link with corporate governance is an important determinant of firms’ financial reporting quality