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CEO Overconfidence and Earnings Management: Evidence from Property-Liability Insurers' Loss Reserves

Author

Listed:
  • Thomas R. Berry-Stölzle
  • Evan M. Eastman
  • Jianren Xu

Abstract

This study investigates the relation between managerial overconfidence and loss-reserving practices in the U.S. property-liability insurance industry. We find robust evidence that CEO overconfidence is significantly associated with relatively low loss reserves, resulting in relatively high reported earnings. This finding is consistent with the theoretical predication that overconfident managers overestimate the returns on their investment projects and underestimate losses. Our result contributes to the literature linking CEOs' personality traits and firms' accounting policy as well as to the literature on insurer loss-reserving practices.

Suggested Citation

  • Thomas R. Berry-Stölzle & Evan M. Eastman & Jianren Xu, 2018. "CEO Overconfidence and Earnings Management: Evidence from Property-Liability Insurers' Loss Reserves," North American Actuarial Journal, Taylor & Francis Journals, vol. 22(3), pages 380-404, July.
    • Handle: RePEc:taf:uaajxx:v:22:y:2018:i:3:p:380-404
    DOI: 10.1080/10920277.2017.1421977
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    Citations

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    Cited by:

    1. Patricia H. Born & Evan M. Eastman & E. Tice Sirmans, 2023. "Managed care or carefully managed? Management of underwriting profitability by health insurers," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(1), pages 5-31, January.
    2. Hoang Tien Nguyen & Ai Ngoc Nhan Le & Quang Thu Luu & Ngoc Thi Thanh Nguyen & Khoa Dang Duong, 2023. "Foreign Ownership, Investor Attention and the Risk-Taking Behavior of Property and Casualty Insurance Firms: Evidence From Vietnam," SAGE Open, , vol. 13(4), pages 21582440231, December.
    3. Roberto Bomgiovani Cazzari & Guilherme Rodovalho Fernandes Moreira, 2022. "Uncertainty of Claims Provisions from the Analysis of Financial Statements," RAC - Revista de Administração Contemporânea (Journal of Contemporary Administration), ANPAD - Associação Nacional de Pós-Graduação e Pesquisa em Administração, vol. 26(3), pages 200400-2004.
    4. Anna Staszel, 2021. "Disclosure of information on increasing and decreasing the balance of reserves in financial statements by companies listed on the Warsaw Stock Exchange," Zeszyty Naukowe Małopolskiej Wyższej Szkoły Ekonomicznej w Tarnowie / The Malopolska School of Economics in Tarnow Research Papers Collection, Malopolska School of Economics in Tarnow, vol. 49(1), pages 99-112, March.
    5. Shi Chen & Jyh-Horng Lin & Wenyu Yao & Fu-Wei Huang, 2019. "CEO Overconfidence and Shadow-Banking Life Insurer Performance Under Government Purchases of Distressed Assets," Risks, MDPI, vol. 7(1), pages 1-25, March.
    6. Khoa Dang Duong & Ai Nhan Ngoc Le & Diep Van Nguyen & Hoa Thanh Phan Le, 2023. "Impact of Ownership Structure and Business Diversifications on the Risk-Taking Behaviors of Insurance Companies in Vietnam," SAGE Open, , vol. 13(3), pages 21582440231, August.

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