Managerial overconfidence and information opacity: evidence from China

Abstract

This study examines how managerial overconfidence affects information opacity in China… We find that overconfident managers significantly increase information opacity. This effect is amplified in firms embedded in strong Confucian cultural environment, where hierarchy and harmony norms suppress the effectiveness of board oversight. However, external governance mechanisms are found effective in constraining overconfidence-induced opacity. Our findings suggest that the overconfidence-opacity relationship is contextually dependent and varies with cultural environment and governance quality. The results carry important implications for regulators and investors in the Chinese emerging market.