This paper empirically investigates the relationship between managerial overconfidence and write-offs following CEO turnover. Incoming CEOs often engage in big bath accounting as they dispose of poorly performing projects. Overconfident managers overestimate their abilities and consequently have upwardly biased expectations concerning future firm performance. I hypothesise that overconfident CEOs are less likely to engage in a big bath following managerial change. The empirical results confirm this hypothesis by showing that big baths at CEO turnover are significantly less frequent among overconfident CEOs.

Additional Metadata
Keywords Big bath, earnings management, managerial characteristics, overconfidence
JEL Accounting and Auditing: General (jel M40), Accounting (jel M41), Corporate Finance and Governance: General (jel G30)
Persistent URL dx.doi.org/10.2139/ssrn.2244870, hdl.handle.net/1765/127775
Journal Accounting and Business Research
Citation
Pierk, J. (2020). Big baths and CEO overconfidence. Accounting and Business Research. doi:10.2139/ssrn.2244870