Abstract

This study investigates the effect of managerial overconfidence on the accrual persistence and market responses. The overconfident managers tend to use less conservative accounting, and engage greater earnings management in order to justify their previous investment decisions(Ahmed and Duellman 2013；Hribar and Yang 2016；Hwang et al. 2015). And the earnings forecast bias from the overconfident manager’s earnings distortions can lead to lower accrual persistence. If the investors do not properly reflect the persistence of accrual, the investors will overestimate the persistence of overconfident manager’s accrual. The sample of this study covers firms from year 2012 to 2017 listed in the KOSPI markets. The final sample includes 3,561 firm－years. The empirical result shows that the managerial overconfidence has a significant and negative relationship with accrual persistence. The results of examining the response of capital market indicate that accrual anomaly exists for overconfident management. That is, investors overestimate the persistence of accrual for overconfident management. The results of the study provide evidence that managerial overconfidence decreases the quality of accounting information in the perspective of earnings persistence. And this study found new factor, managerial overconfidence, influencing accrual anomaly. Also, the results of this study supply the useful information to the investors and financial authorities who use accounting information with enhancing the understanding of managerial overconfidence, earnings persistence, and accrual anomaly.

Keywords

• managerial overconfidence
• accrual persistence
• accrual anomaly

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