Accounting Papers

Document Type

Journal Article

Date of this Version

2012

Publication Source

Journal of Accounting and Economics

Volume

53

Issue

1-2

Start Page

311

Last Page

329

DOI

10.1016/j.jacceco.2011.09.001

Abstract

A detailed analysis of 49 firms subject to AAERs suggests that approximately one-quarter of the misstatements meet the legal standards of intent. In the remaining three quarters, the initial misstatement reflects an optimistic bias that is not necessarily intentional. Because of the bias, however, in subsequent periods these firms are more likely to be in a position in which they are compelled to intentionally misstate earnings. Overconfident executives are more likely to exhibit an optimistic bias and thus are more likely to start down a slippery slope of growing intentional misstatements. Evidence from a high-tech sample and a larger and more general sample support the overconfidence explanation for this path to misstatements and AAERs.

Copyright/Permission Statement

© 2012. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/

Keywords

executive overconfidence, fraud, earnings management, corporate governance

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Date Posted: 27 November 2017

This document has been peer reviewed.