Costs Stickiness and The Relation between Management Overconfidence and Value Relevance

Document Type : Research Paper

Authors

1 professor in accounting, university of mazandaran, babolsar, iran

2 associate professor in accounting, university of mazandaran, babolsar, iran

3 ph.d in accounting, university of mazandaran, babolsar, iran

Abstract

Overconfidence is one of the most important management characteristics that affects firms' financial policies. When sales decline, overconfident managers being extremely confident of their capabilities to restore previous levels of sale may more likely overestimate sales in the near future and it results in a cost stickiness increase. However, the cost stickiness by manipulating the natural process and expected costs could affect informational content. Therefore, management overconfidence can affect the value relevance through influencing costs stickiness. This study is a causal, post-event and applied research. The sample consists of 74 firms during the years 2005 and 2015. The first hypothesis test findings show a significant positive relation between cost stickiness and management overconfidence and the second hypothesis test findings show a significant negative relation between management overconfidence and value relevance. The third hypothesis of the research about the effect of management overconfidence on the value relevance through the costs stickiness is not verified.

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Main Subjects

References

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Empirical Research in Accounting
Volume 8, Issue 4 - Serial Number 30
January 2019
Pages 85-104

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History

  • Receive Date: 03 January 2017
  • Revise Date: 12 January 2019
  • Accept Date: 19 April 2017

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