Research on Managerial Overconfidence, Corporate Financial Risk and Corporate Surplus Management

Abstract

Based on the data of A-share listed companies in Shanghai and Shenzhen from 2008 to 2018, this paper investigates the impact of corporate financial risk on corporate surplus management and further tests the heterogeneous role of power concentration and overconfidence on corporate financial risk through heterogeneity analysis. The empirical findings show that (i) all else being equal, corporate financial risk has a significant contribution to corporate surplus management, i.e., an increase in corporate financial risk causes firms to engage in surplus management behavior; further heterogeneity analysis results show that (ii) all else being equal, overconfident firms have an inhibitory effect on the positive relationship between financial risk and surplus management. In addition, the paper finds that the previous findings remain robust through lagged variable regressions, the use of instrumental variables and the replacement of different measures of surplus management. Finally, the paper combines the findings with corresponding policy recommendations and insights.