IT Company, Overconfidence and Real-Based Earnings Management to Avoid Losses

Abstract

This study aims to examine the relationship between managers' overconfidence tendency and real-based earnings management(hereafter REM) to avoid loss, affecting long-term performance and management decision-making on IT companies. This study examines the REM of IT company between the group with the manager's overconfidence tendency and the incentive for earnings management to avoid loss and another group. As a result of the analysis, we found that the group with the manager's tendency to overconfidence and the incentive to avoid loss performed REM rather than the group that has not. As a result of the additional analysis through the non-IT company sample, we found that non-IT companies perform REM to avoid loss rather than IT companies when managers do not relate overconfidence tendency. The above results indicate that in the case of IT companies that may be sensitive to the distortion of resource flows and activities, if managers are overconfident, they can perform REM due to optimistic predictions of future performance. In addition, the result of this study also suggests that managerial tendencies can influence decision-making on earnings management.