Date of this Version
Journal of Accounting and Economics
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.
© 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/
executive overconfidence, fraud, earnings management, corporate governance
Schrand, C. M., & Zechman, S. C. (2012). Executive Overconfidence and the Slippery Slope to Financial Misreporting. Journal of Accounting and Economics, 53 (1-2), 311-329. http://dx.doi.org/10.1016/j.jacceco.2011.09.001
Date Posted: 27 November 2017
This document has been peer reviewed.