Work

Managerial overconfidence and manipulation of operating cash flow: Evidence from Korea✰

Year: 2019

Type: article

Abstract: Managerial overconfidence theory documents that overconfident managers systemically overinvest with a greater preference for internal funds over debts or equities. This study postulates that a firm's exhausted operating cash flow (OCF) levels, stemming from the overinvestment of overconfident managers, induce them to manipulate reported OCF. We explore whether or how overconfident managers manipulate OCF levels for external reporting purposes. First, we find that overconfident managers adjust negative OCF in a positive direction more than rational peers. Further, we find that overconfident managers engage in higher discretion of OCF.

Source: Finance research letters

DOI: 10.1016/j.frl.2019.101343

Authors: Daecheon Yang, Hyuntae Kim

Institution: Chung-Ang University

Language: English

Topic: Auditing, Earnings Management, Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $1,250

Funders: National Research Foundation, Ministry of Education, National Research Foundation of Korea