Earnings management and managerial honesty: the investors’ perspectives
- Extant research shows that CEO characteristics affect earnings management. This paper studies how investors infer a specific characteristic of CEOs, namely moral commitment to honesty, from earnings management and how this perception – in conjunction with their own social and moral preferences – shapes their investment choices. We conduct two laboratory experiments simulating investment choices. Our results show that participants perceive a CEO to be more committed to honesty when they infer that the CEO engaged less in earnings management. For investment decisions, a one standard deviation increase in a CEO's perceived commitment to honesty compared to another CEO reduces the relevance of differences in the CEOs’ claimed future returns by 40%. This effect is most prominent among investors with a proself value orientation. To prosocial investors, their own honesty values and those attributed to the CEO matter directly, while returns play a secondary role. Overall, perceived CEO honesty matters to different investors for distinct reasons.
Author: | Rajna Gibson, Matthias Sohn, Carmen Tanner, Alexander F. Wagner |
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URN: | urn:nbn:de:hebis:30:3-616471 |
DOI: | https://doi.org/10.2139/ssrn.2912795 |
Parent Title (English): | European Corporate Governance Institute: ECGI Working Paper Series in Finance ; No. 516/2017, Swiss Finance Institute Research Paper ; No. 17-03, LawFin working paper ; No. 7 |
Series (Serial Number): | LawFin Working Paper (7) |
Publisher: | Center for Advanced Studies on the Foundations of Law and Finance, House of Finance, Goethe University |
Place of publication: | Frankfurt am Main |
Document Type: | Working Paper |
Language: | English |
Year of Completion: | 2021 |
Year of first Publication: | 2021 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2021/09/09 |
Tag: | earnings management; honesty; investor preferences; investor segmentation; protected values |
Issue: | February 10, 2021 |
Page Number: | 88 |
Last Page: | SA-33 |
Institutes: | Rechtswissenschaft / Rechtswissenschaft |
Wirtschaftswissenschaften / Wirtschaftswissenschaften | |
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF) | |
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE) | |
Wissenschaftliche Zentren und koordinierte Programme / DFG-Forschergruppen / Foundation of Law and Finance | |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
3 Sozialwissenschaften / 34 Recht / 340 Recht | |
Sammlungen: | Universitätspublikationen |
Licence (German): | Deutsches Urheberrecht |