Author(s): Kyeongmin Jeon
This paper examines the relation between CEO overconfidence and the management of Cash Flow from Operations (CFO). More specifically, author analyzed whether the firms with an overconfident CEO are more likely to engage in cash flows management. I found that even after controlling for industry and year fixed effect, and other determinants, firms with an overconfident CEO are more likely to inflate CFO. The research also found that overconfident CEOs are more likely to manage CFO by shifting items. These findings suggest that overconfident CEOs could have an incentive to inflate cash flows from operations to signal to meet the requirements of shareholders and attract the attention of market investors. This study provides a direct evidence for the relation between CEO overconfidence and cash flow management as a way of earnings management.