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

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  • Yang, Daecheon
  • Kim, Hyuntae

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.

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  • Yang, Daecheon & Kim, Hyuntae, 2020. "Managerial overconfidence and manipulation of operating cash flow: Evidence from Korea✰," Finance Research Letters, Elsevier, vol. 32(C).
    • Handle: RePEc:eee:finlet:v:32:y:2020:i:c:s1544612319306853
    DOI: 10.1016/j.frl.2019.101343
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    Cited by:

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    2. Yang, Daecheon & Koo, Jeong-Ho & Kim, Jaemin, 2023. "The role of venture capitalist monitoring in mitigating cost stickiness: Evidence from Korea's IPO market," Finance Research Letters, Elsevier, vol. 52(C).
    3. Jiang-Chuan Huang & Hueh-Chen Lin & Daniel Huang, 2022. "The Effect of Operating Cash Flow on the Likelihood and Duration of Survival for Marginally Distressed Firms in Taiwan," Sustainability, MDPI, vol. 14(24), pages 1-20, December.

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    More about this item

    Keywords

    Managerial overconfidence; Overinvestment; Operating cash flow (OCF); Financial reporting quality;
    All these keywords.

    JEL classification:

    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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