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

Daecheon Yang and Hyuntae Kim

Finance Research Letters, 2020, vol. 32, issue C

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.

Keywords: Managerial overconfidence; Overinvestment; Operating cash flow (OCF); Financial reporting quality (search for similar items in EconPapers)
JEL-codes: G41 M41 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:32:y:2020:i:c:s1544612319306853

DOI: 10.1016/j.frl.2019.101343

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