Abstract

Purpose: As the distribution environment has recently changed, many traditional wholesale and retail businesses pursue various earning management strategies. Thus, these businesses should develop management strategies to attain efficiency and effectiveness advantages. Specifically, the demand characteristics sensitive to seasonal and external variables in addition to the performance-oriented environment could intensify the pressure on the businesses’ short-term performance based on sales records. These businesses’ structural characteristics provide environments where earning management strategies are actively used according to the managers’ overconfidence. Against this background, we attempted to examine the effects of overconfidence on earning management strategies in the businesses. Research design, data and methodology: Data were collected from 2,917 corporate years of traditional wholesale and retail businesses listed on the securities market from 2018 to 2022. We conducted regression analyses to analyze the data. Results: We found that these businesses had a higher level of real activity earning management strategy than firms in other industries. In addition, we confirmed that the higher the manager's overconfidence tendency in the businesses, the greater the level of earning management using abnormal operating cash flows. Conclusions: We suggested that a traditional wholesale and retail business’s industrial structure and the manager's tendency work in combination to affect the earning management strategy based on real activities.