Managers Overconfidence,Enterprise Life Cycle And Earnings Management

Earnings management is essentially a kind of personal behavior of manager based on their own interests and psychological characteristics.After the separation of ownership and management rights,the accounting information is closely related to the remuneration of manager,which motivates them to manipulate accounting earnings to maximize personal benefits.Overconfidence is the manager's typical behavioral characteristics of their own cognitive and psychological deviation.Earnings management can be divided into accrual earnings management and real earnings management,and different ways have different cost benefits.As the environment changes,the level of overconfidence of manager changes,and the tradeoffs and choices between the two types of earnings management may also change.Whether managers overconfidence and earnings management have significant correlations,whether there are differences in earnings management across different life cycles and how earnings the overconfident managers choose to under different corporate life cycles are the main contents of this thesis.Based on the theory of overconfidence,the theory of life cycle and the principle of performance,this paper analyzes that overconfident managers show confidence intervals for easy-to-shrink forecasts,self-attribution bias and over-optimism,which leads to them overvaluation earnings and underestimate the risk.Therefore,earnings management is motivated by compensation contracts and debt contracts.Different business strategies will be implemented under different life cycles,there are differences between the cost-benefit balance of earnings management as well.Manager' level of overconfidence varies with the life cycle,because of the different levels of risk and challenge they tend to favor in different modes of earnings management.This paper chooses 3335 listed companies of Shenzhen and Shanghai A-share listed companies in China from 2012 to 2016 as samples,measures accrual earnings management with modified Jones model and real earnings management with Roychowdhury model.From external recognition,self-behavior and personal characteristics,at the same time,we establish a comprehensive evaluation model to measure managers overconfidence,divide the life cycle of enterprises by cash flow portfolio method,establish multiple regression models and make empirical analysis on the samples.Empirical results show that managers overconfidence is correlated with accrual earnings management and real earnings management significantly and positively.Comparedwith the mature enterprises,the growing enterprises have lower degree of accrual earnings management and real earnings management.The real earnings management of enterprises in recession is lower too.Compared with the mature period,over-confident managers in growing enterprises seldom choose accruals of earnings management,while those in overdressed enterprises seldom choose real earnings management.This paper explores the relationship between managers overconfidence and earnings management based on the dynamic life cycle of the enterprise,and provides an empirical basis for understanding the earnings management behavior of overconfident managers.It shows that enterprises should strengthen the training of managers' self-awareness,improve the information sharing mechanism and decision-making feedback mechanism of the managerment team,and restrain the earnings management behavior triggered by managers' overconfidence from the source.The conclusions of this paper will help regulators grasp the characteristics and regularity of corporate earnings management practices and improve the efficiency and quality of supervision.It also provides new ideas for investors how to use accounting information to make more scientific and accurate decisions.