[Purpose]This paper investigates the relation between CEO’s overconfidence and revenue－expense matching. Specifically, we examine whether firms with overconfident CEOs have different structures between revenue－expense matching. [Methodology]The sample data are taken from Compustat, CRSP, and the Execucomp database for the period from 1992 to 2014. The period starts in 1992 because the data required to measure overconfidence are available in Compustat after 1992. Our final sample includes 30,486 firm－year observations after excluding firm－year observations without sufficient information to measure each independent variable. [Findings]We find that CEOs who are overconfident exhibit poor matching between revenue and expenses, and that firms with overconfident CEOs do so by deferring the recognition of expenses in a more delayed manner than those without overconfident CEOs. However, additional analysis reveals that firms with good corporate governance weaken the negative relationship between overconfident CEOs and revenue－expense matching. [Implications]We extend prior studies on the overconfident literature by showing that sound governance mechanisms help moderate managerial decisions of the overconfident top executive in recognizing revenue and expenses.
[Purpose]This paper investigates the relation between CEO’s overconfidence and revenue－expense matching. Specifically, we examine whether firms with overconfident CEOs have different structures between revenue－expense matching. [Methodology]The sample data are taken from Compustat, CRSP, and the Execucomp database for the period from 1992 to 2014. The period starts in 1992 because the data required to measure overconfidence are available in Compustat after 1992. Our final sample includes 30,486 firm－year observations after excluding firm－year observations without sufficient information to measure each independent variable. [Findings]We find that CEOs who are overconfident exhibit poor matching between revenue and expenses, and that firms with overconfident CEOs do so by deferring the recognition of expenses in a more delayed manner than those without overconfident CEOs. However, additional analysis reveals that firms with good corporate governance weaken the negative relationship between overconfident CEOs and revenue－expense matching. [Implications]We extend prior studies on the overconfident literature by showing that sound governance mechanisms help moderate managerial decisions of the overconfident top executive in recognizing revenue and expenses.
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