CEO ability and regulatory review risk

Abstract

Purpose Chief executive officer (CEO) ability may have an effect on various corporate reporting decisions, and consequently, the CEO ability is subject to scrutiny by regulatory reviewers. However, theoretical literature provides mixed evidence on how the CEO ability affects the regulatory review risk. Thus, this study aims to empirically examine the effect of CEO ability on regulatory review risk. Design/methodology/approach To measure CEO ability, this study uses the CEO ability-score developed by Demerjian et al. (2012). Further, to measure regulatory review risk, the study uses the probability of receiving a comment letter from the Securities and Exchange Organization of Iran. Findings This study finds that the relationship between CEO ability and regulatory review risk is generally negative and statistically significant but not economically significant, i.e. the relationship is very small. In this regard, the study shows that the relationship is negative and also statistically and economically significant for firms with low levels of agency conflicts and high levels of corporate governance quality; and is positive and also statistically and economically significant for firms with high levels of agency conflicts and low levels of corporate governance quality. In addition, while the study finds no evidence that the regulatory reviewers’ workload compression influences the general relationship between CEO ability and regulatory review risk, it documents that low (high) regulatory reviewers’ workload compression weakens (strengthens) both the relationships stated above. Originality/value Collectively, the results suggest that the agency conflicts/corporate governance quality and regulatory reviewers’ workload compression are important factors in the analysis of the relationship between the CEO ability and regulatory review risk. The results offer insights into the opposing theoretical viewpoints about the relationship between CEO ability and regulatory review risk. Thus, the results will be of interest to boards of directors and other stakeholders involved in the regulatory review process.

"Information Asymmetry, Leverage Deviation and Leverage Adjustment Speed "

“…Since the year 2000, the Iranian government has also been seeking ways to reduce inflation, bring foreign debts under control, and strengthen key economic and social performance indicators. These reforms had gradually increased the total market capital of the country to the GDP ratio of about 30 per cent (Hesarzadeh, 2019). The growth of the TSE is similar to many developing capital markets in Asia and Latin America (Vandenbrink & 6 Asian Journal of Business and Accounting 13(1), 2020 Wei-Yen, 2005;Rotaru, 2016;Yasser Qaiser, 2016) and at the time of the study, it had more than 300 listed firms.…”

“…In financial reporting, the basics of drafting regulations on corporate reporting, corporate governance and investor protection are the same between developing and advanced capital markets (Hesarzadeh, 2019). Although Iran has its own national accounting and auditing standards, it has been trying to narrow down the differences between the national and international standards over the past decade.…”

CEO financial background and internal control weaknesses

“…Furthermore, since the 2000s, the government of Iran has made efforts to undertake some economic reforms, such as reducing inflation, getting external debts under control, and enhancing most of the key economic and social performance indexes; such reforms have gradually increased the average ratio of the total market capitalization to Iran's gross domestic product to about 30% (TSE, ). In addition, Iran's corporate reporting requirements are similar to those of the United States regarding reports on suspicious transactions, irregularities and violations, insider practices, and financial reporting including management discussion and analysis reporting, annual and interim reporting, and internal control reporting (Hesarzadeh, ; Hesarzadeh & Bazrafshan, ). Moreover, Iran has accepted international accounting standards for the last three decades; it is also notable that the National Accounting Standards of Iran are driven from the International Accounting Standards.…”

“…Therefore, first, in the probit regression, we control for firm characteristics that are associated with the firm's life cycle, including FIRMAGE, SIZE, ROA, R&D, RETAINED EARNINGS, DIVERSIFICATION, and BUSI-NESS SEGMENT (Gounopoulos & Pham, 2018). Next, following previous studies (Hesarzadeh & Bazrafshan, 2019;Lawrence, Minutti-Meza, & Zhang, 2011), to obtain the fitted values from the first-stage probit estimation, we match each firm-year observation to a firm-year observation with the closest fitted value (within 5%) in the same year and the same industry. Then, we estimate Equation (1) using the matched sample.…”

The beneficial effect of shareholder participation in general meetings: Evidence in the context of audit quality

“…Second, consistently with the research motivation, the TSE is an emerging market. In this regard, the TSE is comparable to most large developing capital markets in terms of basic market infrastructure (Hesarzadeh & Bazrafshan, 2019;Hesarzadeh & Rajabalizadeh, 2020). For example, in recent decades, Iran has used international accounting/auditing standards as a foundation for setting its national standards (Mashayekhi & Mashayekh, 2008).…”