Big baths and CEO overconfidence

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3 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)1-21
Number of pages21
JournalAccounting and Business Research
Volume51
Issue number2
DOIs
Publication statusPublished - 23 Feb 2021

Bibliographical note

Funding Information:
This paper is based on one part of my dissertation at Humboldt University Berlin. A previous version of this paper was co-authored with Valentin Burg and Tobias Scheinert, to whom I am especially grateful. I acknowledge comments and suggestions by Maria Correia (the editor) and two anonymous referees. I further would like to thank Tim R. Adam, Ulf Br?ggemann, Joachim Gassen, Igor Goncharov, Urska Kosi, Beatriz Garc?a Osma, Caspar David Peter, Catherine Shakespeare, Jeroen Suijs, and seminar participants at Humboldt University Berlin, conference participants at the 2013 EAA Annual Meeting in Paris, and workshop participants at the EAA 29th Doctoral Colloquium for their helpful comments.

Publisher Copyright:
© 2020, © 2020 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.

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