Multiple measurements of CEOs' overconfidence and future earnings management: evidence from Asia-Pacific developing countries

This study investigates the association between CEOs’ overconfidence and future earnings
management. This research is designed to explain CEOs’ overconfidence with the serial logic of
self-confidence and self-identity in constructing their overconfidence. The authors demonstrate
the CEOs’ overconfidence using multiple measures exploratorily that criticise their behaviour to
manage their firms’ earnings aggressively. The authors collected data from the Bureau Van Dijk
and Refinitiv Thomson Reuters databases. They identified manufacturing firms listed on the
stock exchanges of Singapore (SSE), Malaysia (KLSE), Thailand (SET), the Philippines (PSE),
Indonesia (IDX), Vietnam (HOSE), Pakistan (PSE); Taiwan (TSEC); India (NSE) and China (SSE).
They categorised developing countries as lower-middle and upper-middle-income. This study
used Generalised Least-Square (GLS) regression to test all the hypotheses. This study finds this
association robust in an international setting for developing countries. In other words, it shows
some extant research that most CEOs in developing countries would intentionally like to manage
future earnings. Furthermore, it identifies developing countries with lower-middle incomes and
less competition due to emerging capital markets. Then, it highlights that CEOs in developing
countries tend to be overconfident because of cognitive behaviour. Moreover, these CEOs
assemble an organisational culture that can easily improve prospective performance. Therefore,
this study infers that economic uncertainty causes CEOs to be overconfident, enhancing their
boldness when managing earnings excessively. This study presents a novelty supported by three
critical reasoning arguments. First, it explains the phenomenon of CEOs’ overconfidence through
self-confidence (self-control). Second, the authors develop multiple measurements used in the
study to mark the CEOs’ overconfidence as a combined product of self-confidence and selfidentity.
It uses capital expenditures to measure the CEOs’ overconfidence and firm overinvestment,
the incremental debt-to-equity ratio, historical earnings persistence, historical stock
price persistence, the magnitude of the related party’s transactions and political connections.
Third, this study investigates CEOs’ overconfidence in an international setting.