Big Baths and CEO Overconfidence
Accounting and Business Research, forthcoming
34 Pages Posted: 5 Apr 2013 Last revised: 15 Jun 2020
Date Written: June 14, 2020
Abstract
This paper empirically investigates the relationship between managerial overconfidence and write-offs following CEO turnover. Incoming CEOs often engage in big bath accounting as they dispose of poorly performing projects. Overconfident managers overestimate their abilities and consequently have upwardly biased expectations concerning future firm performance. I hypothesise that overconfident CEOs are less likely to engage in a big bath following managerial change. The empirical results confirm this hypothesis by showing that big baths at CEO turnover are significantly less frequent among overconfident CEOs.
Keywords: Big bath accounting, earnings management, write-offs, overconfidence, CEO-turnover
JEL Classification: M40, M41, G30
Suggested Citation: Suggested Citation
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