The Role of Environmental Uncertainty, Financial Constraints and Accounting Conservatism in Limiting the Performance Outcomes Due to Manager Overconfidence

The excessive self-esteem of managers leads to postponing bad news due to weaknesses in performance, and conservatism can be a factor in modifying it. In this paper, the purpose is to examine the role of accounting conservatism in limiting the functional outcomes results from overconfidence managers.

The data of the companies listed in the Tehran Stock Exchange for the period of 2005 to 2017 has been extracted and the combined data regression model has been used to test the research hypotheses.

The results of the first hypothesis of the research, based on the significant and interactive effect of conservatism and overconfidence on company's performance, are approved. Also, the second hypothesis of the research indicates that environmental uncertainty has a significant effect on the overall interaction of overconfidence managers and accounting conservatism on future performance. Finally, the results indicate that financing constraints have a significant effect on the overall interaction of overconfidence managers and accounting conservatism on future performance.

The results of the research indicate that business units with over-confident managers and conservative practices in accounting have a favorable future performance. Conservatism controls the managerial behaviors and it leads to improved performance, and the presence of funding constraints and environmental uncertainty due to fluctuation in the results lead to a reduction in management's optimism.