The impact of managerial characteristics on earnings persistence and information asymmetry

Abstract

I examine the relation between managerial characteristics and firm environment. I find that some managers tend to be overconfident when their ability is higher, which is consistent with the prior literature about management overconfidence. Demerjian et al. (2013) suggested the idea that managerial ability is positively associated with earnings quality. In an extensive vein of Demerjian et al. (2013), I find that firms with managers who are both overconfident and talented have difficulty in sustaining earnings persistence than only talented managers who are not overconfident. This results implies that management overconfident behavior de-ters information delivery process. Finally, I find that capable managers try to reduce the in-formation asymmetry between insiders and market participants. Additionally, this reduction of information asymmetry is deterred by managerial overconfidence. This paper will provide the evidence that the market efficiency hypothesis is determined by management characteris-tics.