Investigating the effect of optimism, overconfidence, and conservatism biases on the qualitative characteristics of feedback value and accounting earnings transparency

Subject Areas : Financial and Behavioral Researches in Accounting

hamed pad ¹ , Mehdi Meshki Miavaghi ²

1 - Master of Auditing, Accounting Department, North Strategy Non-Profit University, Rasht, Iran
2 - Associate Professor of Finance, Department of Accounting and Finance, Payam Noor University, Tehran, Iran

Received: 2025-04-30 Accepted : 2025-08-21 Published : 2025-09-07

Keywords: Feedback value, overconfidence, optimism, profit transparency, conservatism,

Abstract :

The purpose of the study was to investigate the effect of optimism, overconfidence, and conservatism biases on the qualitative characteristics of feedback value and accounting earnings transparency. The study was applied and descriptive, and the statistical population of the study included companies listed on the Tehran Stock Exchange. Accordingly, 140 companies were selected from the statistical population in the period 1396 to 1401 by applying some restrictions, and the relationships between the research variables were analyzed using pooled data and the logistic regression method. The results of the hypothesis test show that the management optimism variable has a negative and significant effect on both dependent variables of earnings transparency and the feedback value of accounting information. This means that by increasing management optimism and creating a gap between actual earnings and forecasted earnings, the market reaction to earnings and its changes (as a measure of earnings transparency) is reduced, and the sensitivity of the stock market value to earnings is also reduced. This may be due to the decrease in market confidence in management's forecasts and performance. The results also indicate a positive effect coefficient of accounting conservatism on the dependent variables of the study and show that applying conservative policies and avoiding overstatement of profits has been effective in attracting general investor confidence in the company.

References:

BASHIRIMANESH, NAZANIN, HAJIZADEH, ZAHRA, & GHOBADI, SAEED. (2022). Effects of Managers' Behavioral Bias on Decision Making and Financial Information Quality. JOURNAL OF
EMPIRICAL RESEARCH IN ACCOUNTING, 12(43 ), 195-224. (In Persian) Bustani, Farnaz and Rezaei, Farzin. (2015). The Effect of Management Optimism on Investment Efficiency and Firm Value, First International Conference on Applied Economics and
Business. (In Persian) Hasas Yeghaneh, Yahya, & HASANI ALGHAR, MASOUD. (2019). Financial Reporting Quality and Relation between Managerial Overconfidence and Investment Efficiency. JOURNAL OF
EMPIRICAL RESEARCH IN ACCOUNTING, 9(33 ), 25-54. (In Persian) Hassani, Mohammad and Zighami, Elnaz (2015). An empirical study of the relationship between overinvestment and overconfidence, Quarterly Journal of the Stock Exchange, 32: 73-
97. (In Persian) Hassanzadeh, Mostafa and Bulu, Ghasem (2011). The effect of investors' emotional orientation on the value relationship of accounting information, Accounting Advances, 13(2): 122-97.
(In Persian) KHODAMI POUR, A., & PANAHI GONHARANI, R.. (2017). THE IMPACT OF ACCOUNTING CONSERVATISM ON THE INVESTMENT EFFICIENCY CONSIDERING INFORMATION ASYMMETRY.
JOURNAL OF FINANCIAL ACCOUNTING RESEARCH, 9(3 (33) ), 91-110. (In Persian) Abbasi, Ebrahim, Vakili Fard, Hamid Reza and Morteza, Marouf. (2017). Investigating the effect of managerial overconfidence on the quality of financial reporting and conditional
conservatism in Tehran Stock Exchange, Accounting and Management Auditing Knowledge, 7(25): 193-205. (In Persian) Kiani, Hamid Reza, Anvai Rostami, Ali Asghar, Gargar, Mansour (2019). Investigating the effect of managers' overconfidence on the quality and cost of auditing companies listed on the
Tehran Stock Exchange, Human Resource Management Research, 10(2): 123-146. (In Persian) Salehi, Elah Karam, Mousavi, Ruhollah, Moradi, Mohammad (2017). Investigating the effect of managerial optimism on investment sensitivity to cash flow, Financial Knowledge
Securities Analysis, 10(36): 65-76. (In Persian) Nasirzadeh, Farzaneh; Mohammadreza Abbaszadeh and Mohammadhossein Arani (2017). Investigating the effect of managers' optimism and the resulting information asymmetry on
the risk of stock price collapse, Quarterly Journal of Financial Accounting, 34(9): 70-35. (In Persian) Barth, Mary E., Konchitchki, Yaniv and Landsman, Wayne R. (2013), “Cost of capital and earnings transparency”, Journal of Accounting and Economics, 55: 206–224 7. Barth, Mary E., Konchitchki, Yaniv and Landsman, Wayne R. (2009), “Cost of Capital and Earnings Transparency”, Research Paper Series, Stanford University, Graduate School of
Business.
Chronopoulos, P. I., & Siougle, G. (2019). Management Forecasts and the Persistence of Earnings and Earnings Components, Available at SSRN 3344274.
Fung, H. G., Qiao, P., Yau, J., & Zeng, Y. (2020). Leader narcissism and outward foreign direct investment: Evidence from Chinese firms. International Business Review, 29(1), 101–632.
Ham, C., Seybert, N., & Wang, S. (2018). Narcissism is a Bad Sign: CEO Signature Size, Investment, and Performance. Review of Accounting Studies, 23(1), PP. 234-264.
Healy, P.M., Palepu, K.G. and Ruback, R.S. (1992). Does corporate performance improve after mergers?, Journal of Financial Economics, 31(2), 135-175.
Hribar, P., & Yang, H. (2016). CEO Overconfidence and Management Forecasting. Contemporary Accounting Research, 33(1), 204-227.
Kartini, K., Nadha, K. (2021). Behavioral Biases on Investment Decision: A Case Study in Indonesia, Journal of Asian Finance, Economics and Business Vol 8 No 3 (2021) 1231–1240.
Liston, D., Landsman, V.R., Stubben, S. ( (2023). CEO Overconfidence and Stock Price Crash Risk, Contemporary Accounting Research, 33(4),PP. 1720-1749. Samir, A, AbdElRasheed. M, Rashed, A and Khalil, M. (2023). Financial distress and stock price crash risk in Egyptian firms. Investment Management and Financial Innovations, 20(3),
311-320.
Subash, Ragul (2012). Role of Behavioral Finance in Portfolio Investment Decisions: Evidence from India, master thesis, Charles University in Prague.
Scherand, C. M. & Zechman, S. L, (2011).Executive Overconfidence and the Slippery Slope to Financial Misreporting. Journal of Accounting and Economics, 53(1-2):311–329.
Zhang,Z.(2023). The Role of Behavioral Bias in Investment Outcomes, Highlights in Business, Economics and Management, 15. 99-104.