An Analysis of Financial Distress Proceed by Emotional-Cognitive Biases based on Narcissism Approach

Document Type : Original Article

Authors

1 Ph.D Student, Department of Accounting, Rasht Branch, Islamic Azad University, Rasht, Iran.

2 Assistant Professor, Department of Accounting, Rasht Branch, Islamic Azad University, Rasht, Iran.

3 Associate Professor, Department of Psychology, Rasht Branch, Islamic Azad University, Rasht, Iran.

Abstract

The latest researches of the analysis on financial distress show that the background of management mentally of emotional-cognitive biases has important role on identifying and creation of financial distress. Therefore, the aim of this study is an analysis of financial distress proceed by emotional-cognitive biases of organizational managers based on Narcissism approach in the listed companies of Tehran Stock Exchange through using a statistical sample including 147 firms on the year of 2019, which selected by the six determined factors of financial distress in the last researches. The result of regression analyses show that there is a significant and positive relationship between the emotional-cognitive biases of managers including overconfidence, control illusion, conservatism, optimism, loss avoidance, and regret aversion with financial distress, such as the higher level of emotional-cognitive biases of organizational managers due to more financial distress. Hence, the incidence of financial distress proceeds by the higher level of emotional-cognitive biases of managers.

Keywords