Managerial Overconfidence and Stock Price Crash Risk: An Analysis of the Mediating Effect of Accounting Conservatism

Abstract

Using A-share listed companies on the Shanghai and Shenzhen stock exchanges from 2012 to 2019 as the sample, this paper empirically examines the effect of managerial overconfidence on stock price crash risk. Investment expenditure and shareholding decisions are used as proxies for managerial overconfidence, and accounting conservatism is introduced as a mediating variable to analyze the mechanism linking the two. The results show that managerial overconfidence does indeed aggravate stock price crash risk. The mechanism is that overconfident managers reduce the conservatism of accounting information processing in order to conceal adverse information, thereby increasing the likelihood of a stock price crash. Accounting conservatism plays a partial mediating role in this process. The results remain valid after robustness tests.