Manager Sentiment and Conditional Conservatism

Nhat Q (Nate) Nguyen, Daniel Collins, Tri Tri Nguyen

Research output: Contribution to journalArticlepeer-review


This study examines the effect of manager sentiment on conditional conservatism. Manager sentiment refers to widely held beliefs of financial managers about their firms’ future economic prospects that are not justified by available economic fundamentals. Manager sentiment is likely to affect conditional conservative reporting because the decision to recognize unrealized economic losses in a timely manner flows from financial managers’ beliefs about their firms’ future cash flow prospects. We predict and find that manager sentiment is negatively associated with conditional conservatism, indicating that firms report less conservatively during periods of high manager sentiment (over-optimism) and more conservatively during periods of low manager sentiment (over-pessimism). Moreover, the effects of manager sentiment on conditional conservatism remain strongly negative after controlling for manager overconfidence. We further find that asset write-offs are lower during high sentiment periods but higher in subsequent periods. Importantly, the manager sentiment effect on conservatism is incremental, and opposite in sign, to the effect of investor sentiment, which has not been demonstrated in prior literature.
Original languageEnglish
JournalJournal of Business Finance and Accounting
Publication statusPublished - 15 Jan 2024


  • manager sentiment
  • conditional conservatism
  • asymmetric timely loss recognition
  • capital markets
  • behavioral bias
  • asset write-offs
  • asset impairment

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