The effect of managers' overconfidence on financial reporting tone

Subject Areas : Financial and Behavioral Researches in Accounting

nazanin  bashirimanesh ¹ (Assistant Profesor. Faculty of management, economic& accounting, PNU University, Tehran, Iran.)
nayyer  ourojoghli ² (MSc. Student in Accounting, economic& accounting, PNU University, shahr rey, Iran)

Received: 2021-10-04 Accepted : 2021-11-04 Published : 2021-11-22

Keywords: Tone, Unexpected Tone, Managers' Overconfidence,

Abstract :

Descriptive expression of financial statements can be very important because of the ability to express positive or negative of news and information and ultimately affect users. Managers can distract users' perceptions of explanatory reports using text tone management. Therefore, the purpose of this study is to investigate the effect of managers' overconfidence on the financial reporting tone. For this purpose, a sample of 129 companies listed on the Tehran Stock Exchange during the years 2014 to 2020 were reviewed. In this study, managers' overconfidence was measured in terms of three methods of capital expenditure, over investment and debt ratio, and research hypotheses were tested using combined data and multiple regression in SATA and EVIEWS software. Findings from the test of research hypotheses show, that when managers' overconfidence is in the form of over-investment and increase in capital expenditures, has a positive and significant relationship with using of positive words in financial statements. Therefore, in this case, due to the overconfidence and optimism of the manager, the simple and unexpected tone of financial reporting has more positive words and becomes optimistic. But if the overconfidence behavior of manager occurs in the form of increasing the amount of debt and receiving bank facilities, it has a negative and significant relationship with the simple and unexpected tone of financial reporting. Therefore, in this case, due to the increase in financial risk of the company, the use of positive words in financial reporting is less.

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