The Impact of Managerial Behavior Biases on the Factor Structure of Earnings Information Content: Evidence from an Emerging Market

This study examines the impact of managerial behavioral biases overconfidence, optimism, and myopia on the earnings information content (EIC) of manufacturing firms listed on the Iraqi Stock Exchange between 2018 and 2023. Employing exploratory factor analysis (EFA), the four key dimensions of EIC predictability, persistence, value relevance, and proximity to cash flows were consolidated into a unified composite index. A panel data regression model with bootstrapped standard errors was applied to address potential heteroscedasticity and enhance the robustness of estimates in a finite sample. The results indicate that managerial optimism has a significant negative effect on EIC, while the negative effects of overconfidence and myopia are statistically insignificant. Moreover, stock returns exhibit a positive and significant association with EIC. These results underscore the critical role of cognitive biases in shaping financial reporting quality, particularly in emerging markets with institutional constraints. The study offers novel methodological and contextual contributions by employing EFA to operationalize multidimensional earnings quality and highlighting the distinct effects of managerial biases in the Iraqi market. The insights are valuable for investors, auditors, and regulators seeking to improve financial disclosure practices. Keywords: managerial behavioral biases, earnings information content, exploratory factor analysis, emerging markets.