The effect of management's overconfidence on re-presentation of financial statements

Number of pages: 122 File Format: word File Code: 29798
Year: 2014 University Degree: Master's degree Category: Librarianship
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  • Summary of The effect of management's overconfidence on re-presentation of financial statements

    Academic Thesis for Master's Degree (M.A.) Field: Accounting

    Abstract

    Given that in recent years, the re-presentation of financial statements has become very common among Iranian companies. In this research, some factors influencing the re-presentation of financial statements of companies admitted to the Tehran Stock Exchange, such as overconfidence of the management, duplicity of the CEO and so on, have been tried.  In this regard, the effect of management overconfidence on the re-presentation of financial statements of companies admitted to the stock exchange has been investigated. The statistical population of the current research is the companies admitted to the Tehran Stock Exchange during the years 1387 to 1391, and the statistical population is equal to 116 companies according to the screening method and after removing unacceptable observations. Based on this, in this research, the overconfidence of the management is considered as an independent variable so that its effect on the dependent variable, re-presentation of financial statements, is examined. In the first hypothesis, the relationship between the overconfidence of the management on the re-presentation of financial statements was investigated, in the second hypothesis, the relationship between the percentage of non-commissioned directors of the board of directors and the re-presentation of financial statements was investigated, and in the third hypothesis, the duality of the CEO with the re-presentation of financial statements was investigated. In this research, which uses panel data with fixed effects, the results of data analysis using multivariate regression at the 95% confidence level show that there is a significant direct relationship between management overconfidence and CEO ambivalence with re-presentation of financial statements. There is a significant inverse relationship between the percentage of non-commissioned directors of the board of directors and the renewal of financial statements.

    Key words: re-presentation of financial statements, overconfidence of management, duality of the CEO, percentage of non-commissioned directors of the board of directors

    1-1) Introduction

    What will happen in the future is the result of decisions. The purpose of forecasting is to reduce risk in decision-making, and in making investment decisions, predicting the future based on past financial and accounting information plays an important and essential role. One of the most important qualitative features of accounting information is its reliability. According to the theoretical concepts of financial reporting, reliable information is free from errors and biases. A research conducted earlier in Iran shows that a high percentage of Iranian companies, due to the correction of accounting mistakes, re-present the financial statements and report a figure under the title of annual adjustments. This issue shows that the accounting information of the companies is doubted to be free from mistakes.

    In the present study, the effect of overconfidence of the management on the re-presentation of financial statements is investigated. Therefore, in the rest of this chapter, after the statement of the problem, we will discuss the importance and necessity of the research, and the outline of the research including hypotheses, research objectives, the main basis of the research question and research topic, variables and their operational definition, and the statistical methods used to test the hypotheses and some key terms will be defined and explained at the end of this chapter. It is summarized and classified information about the financial status, financial performance and financial flexibility of the business unit, which is useful for a wide range of users of financial statements in making economic decisions. The main quality characteristics related to information content are "relevance" and "reliability" and the main quality characteristics related to information presentation are "comparability" and "comprehensibility". Information that lacks these characteristics is not useful or has limited utility. Because the qualitative characteristics of comparability and comprehensibility increase the usefulness of information, the existence of accounting procedure stability in the accounting methods used and proper disclosure of information is required (Accounting Standards Development Committee). Therefore, if there is a mistake or a change in the procedure in the financial statements of the current period compared to the previous period or periods, re-presenting the financial statements will be a common tool to establish the stability of the procedure and proper disclosure of information. Examining the financial statements of the companies admitted to the Tehran Stock Exchange indicates that most of the companies resubmit their financial statements.

    Annual adjustments and resubmission of financial statements of previous periods have many negative consequences.The net profit figure is the basis for calculating things such as board of directors' bonuses, taxes and dividends to shareholders. In addition, the profit per share and the ratio of price to profit per share are among the indicators that are used by analysts and investors. As a result, incorrect presentation of profit, and its correction in later periods, that is, after making related decisions, will have economic and financial effects on different people. Another negative consequence of annual adjustments is its effect on the credibility of auditors. The purpose of auditors is to give credit to financial statements, and when the audited financial statements of past periods are re-presented many times due to significant accounting mistakes, the public's trust in auditors' comments decreases (Nikbakht and Rafiei, 2013).

    In order to understand the possible motivations of companies from misrepresenting accounting figures and correcting them in future periods, it is necessary to pay attention to the factors that justify such actions. The research conducted in the field of fraudulent reporting has listed various motives for such actions. Some researchers, with the assumption that the re-presentation of financial statements is rooted in common motives, argue that these motives can be manifested and crystallized in the characteristics and financial and economic information of these companies. In this way, according to factors such as corporate governance structure, it is possible to predict the re-presentation of financial statements. In fact, the more efficient and effective the corporate governance mechanisms are in a company, due to the reduction of information asymmetry and the reduction of agency costs, it is expected that the amount of re-presentation of financial statements will be lower (Nikbakht and Rafiei, 2013). Therefore, in order to reduce the amount of re-presentation of financial statements, examining the factors that affect the re-presentation of financial statements, especially factors from the field of behavioral sciences that have been less addressed by past researchers, seem to be important and fruitful.

    According to the above, the main issue that we will answer in this research is: What effect does management overconfidence have on the re-presentation of financial statements of companies listed on the Tehran Stock Exchange?

    1-3) Necessity and importance of research

    In recent years, re-presentation of financial statements has become very common among Iranian companies in such a way that annual adjustments are considered as one of the relatively stable elements in the circulation of the accumulated profit and loss account. It is remembered. These adjustments are mainly due to the correction of the mistakes of the past period, and the cases related to the change of accounting methods are less observed. This has an effect on the reliability of the figures presented in the financial statements, especially the profit figures. Therefore, according to the prevalence of re-presentation of financial statements of Iranian companies, the need to conduct such a research is doubly felt (Mousavi, 2009).

    1-4) Research objectives

    The main goal of this research is to investigate the effect of management overconfidence on the re-presentation of financial statements of companies. The theoretical or theoretical goal of this research is the scientific study and investigation and the challenge surrounding the issue of the factor of re-presentation of financial statements. In other words, the theoretical goal is to contribute to the knowledge of financial management and accounting in the direction of its development. The potential and actual investors of the stock exchange helped in the analysis of investment plans in financial assets and securities with regard to the factor of re-presentation of financial statements; Because considering this important factor leads to the selection of the optimal investment portfolio with minimum risk and maximum efficiency, while also doubling the transparency of the decision-making environment and the results. 

    In addition to nominal and actual investors, the following organizations and companies can take advantage of the results of this research:

    Stock Exchange Organization,

    Investment companies and brokerages,

    Tehran Stock Exchange Companies,

    Audit Organization and Auditing Companies

    Iranian Certified Public Accountants

    1-5))       Research hypotheses

    First hypothesis: There is a significant relationship between overconfidence of management and restatement of financial statements of companies.

  • Contents & References of The effect of management's overconfidence on re-presentation of financial statements

    List:

    Abstract 1

    Chapter One: General Research

    1-1) Introduction. 3

    1-2) Description and statement of the problem. 3

    1-3) Necessity and importance of research 5

    1-4) Research objectives. 6

    1-5) research hypotheses 7

    1-6) research model and operational definition of its variables. 7

    1-7) research method 9

    1-8) information gathering method. 9

    1-9) research area.. 9

    1-10) Definition of specialized words and terms. 10

    1-11) research structure. 11

    Chapter Two: Theoretical Foundations and Research Background

    2-1 Introduction. 13

    2-2 Part I: Theoretical foundations of re-presentation of financial statements. 13

    2-2-1) Reasons for renewing financial statements. 16

    2-2-2) Reaction to the reasons for re-presentation of financial statements. 17

    2-2-3) Consequences of restating financial statements. 18

    2-3 Part II: The theoretical foundations of the Board of Directors 21

    2-3-1) External organizational mechanisms. 21

    2-3-2) internal organizational mechanisms. 22

    2-3-3) Board of Directors 24

    2-3-4) Composition of the Board of Directors 26

    2-4 The third part: Management overconfidence. 37

    2-5 Part IV: Background of the research. 41

    Chapter 3: Research implementation method

    3-1) Introduction. 51

    3-2) research method. 52

    3-3) research hypotheses. 52

    3-4) research model and operational definition of variables 53

    3-5) statistical population. 55

    3-6) Gathering information. 56

    3-7) Data analysis methods and tools 57

    3-8) Statistical methods of hypothesis testing 58

    3-9) Multivariate regression 58

    3-9-1 coefficient of determination and corrected coefficient of determination 60

    3-9-2 assumptions of linear regression. 60

    3-9-3 test of independence of errors 61

    3-9-4 test of model suitability. 62

    3-9-5 Test of significance of coefficients. 62

    3-10) Examining the structure of combined data and its types of models. 63

    3-10-1 Fixed effect model. 64

    3-10-2 Random effect model. 65

    3-10-3 Detection tests in combined data. 65

    3-11) chapter summary. 67

    Chapter Four: Research Findings

    4-1) Introduction. 70

    4-2) Descriptive data statistics 70

    4-3) Reliability test of variables 72

    4-4) Determining the appropriate model to estimate the regression model. 74

    4-5) Classic hypothesis test of regression. 76

    4-5-1) Test of the normality of the dependent variable distribution. 76

    4-5-2) Test of independence of errors 77

    4-5-3) Heterogeneity of variances 78

    4-5-4) Test of collinearity of independent variables. 79

    4-6) Test of research hypotheses. 80

    Chapter Five: Conclusions and Suggestions

    5-1) Introduction. 85

    5-2) Research summary and conclusion. 85

    5-3) Examining the findings and interpreting the research results. 87

    5-3-1) Test of the first hypothesis. 87

    5-3-2) Second hypothesis test. 88

    5-3-3) Test of the third hypothesis. 88

    5-4) research limitations. 89

    5-5) Practical research suggestions. 90

    5-6) Suggestions for future research. 91

    Sources and sources. 92

    Appendix. 99

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The effect of management's overconfidence on re-presentation of financial statements