CEO's financial experience and earnings management

Jiang, Fuxiu; Zhu, Bing; Huang, Jicheng

doi:10.1016/j.mulfin.2013.03.005

Cited by 110 publications

(135 citation statements)

References 34 publications

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“…The main purpose of this study is to examine the association between CEOs' financial background and ICWs in the Iranian setting. We posit that CEO financial background could improve the corporate performance through reducing ICWs, because prior research suggests that hiring a financial expert CEO enhances financial reporting quality (Gounopoulos & Pham, ; Jiang et al, ) and firm profitability (Custodio & Metzger, ) and also reduces the audit risk (Baatwah et al, ; Kalelkar & Khan, ). Our results demonstrate that ICWs are considerably less frequent in companies hiring financial expert CEOs.…”

Section: Discussionmentioning

confidence: 99%

“…In this respect, Lin et al () argue that top managers may override internal controls or use ICWs in their own interests and disregard shareholders' interests. Empirical evidence supports these concerns but indicates that the effects of CEOs are not the same and vary according to their characteristics (e.g., Demerjian, Lev, Lewis, & McVay, ; Jiang, Zhu, & Huang, ).…”

Section: Introductionmentioning

confidence: 99%

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CEO financial background and internal control weaknesses

Oradi

Asiaei

Rezaee

2020

Corporate Governance

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Research question/issue The existing literature documents that the functional expertise of Chief Executive Officers (CEOs) in finance reduces poor performance risk, improves financial reporting quality, and mitigates audit risk. In this study, we examine the association between CEOs' financial background and internal control weaknesses (ICWs). Research findings/insights Using a sample of Iranian listed companies for the period 2007–2017, we find a significant negative association between CEOs with financial expertise and ICWs. Furthermore, we show that the negative association between CEO financial expertise and ICWs is stronger if the CEO is recruited from inside the firm. Our main results are robust after controlling for the potential selection issue, random effects at the firm level, and the impact of the new Iranian internal control regulations. Moreover, our results remain unchanged after controlling for other CEO characteristics, audit committee characteristics, audit fees, and using an alternative measure of financial expertise. Theoretical/academic implications Our study contributes to the extant literature by examining the association between CEOs' financial background and ICWs, a theme that remains largely unexplored in previous research. We also extend the literature on CEO succession origin. Practitioner/policy implications This study has important implications for regulators regarding the improvement of financial reporting quality and the effectiveness of internal controls, especially in the emerging markets. Particularly, our findings may be of benefit to auditors when assessing the risks regarding their clients' material weaknesses, as well as to shareholders and boards of directors when hiring a new CEO.

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Section: Discussionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

CEO financial background and internal control weaknesses

Oradi

Asiaei

Rezaee

2020

Corporate Governance

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“…A major limitation of the few existing studies (Abernathy et al 2014;Alfonso et al 2015;Fan et al 2010;Haw et al 2011;Roberts 2016, 2017) is that they have often treated all CEOs engaged in classification shifting as the same, irrespective of their background, specifically their gender origins. Extant research has shown that CEOs' reputation, financial expertise, tenure, and age have an impact on their motivation and ability to engage in earnings management (i.e., Ali and Zhang 2015;Francis et al 2008;Huang et al 2012;Jiang et al 2013). However, since the appointment of women in top executive positions is relatively low, we focus on CEOs gender.…”

Section: Introductionmentioning

confidence: 99%

Female CEOs and Core Earnings Quality: New Evidence on the Ethics Versus Risk-Aversion Puzzle

et al. 2018

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The question of whether females tend to act more ethically or risk-averse compared to males is an interesting ethical puzzle. Using a large sample of US firms over the 1992-2014 period, we investigate the effect that the gender of a chief executive officer (CEO) has on earnings management using classification shifting. We find that the pre-Sarbanes-Oxley (SOX) Act period was characterized by high levels of classification shifting by both female and male CEOs, but the magnitude of such practices is, surprisingly, significantly higher in firms with female CEOs than in those with male CEOs. By contrast, our results suggest that following the passage of the punitive SOX Act, classification shifting by female CEOs declined significantly, whilst it remained pervasive in firms with male CEOs. This suggests that the observable differences in financial reporting behavior between male and female CEOs seem to be because female CEOs are more risk-averse, but not necessarily more ethically sensitive than their male counterparts are. The central tenets of our findings remain unchanged after several additional checks, including controlling for alternative earnings management techniques, corporate governance mechanisms, CEO and chief financial officer characteristics and propensity score-matching.

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“…Jiang et al (2013) tested the association between CEO financial expertise and earnings management in China. Using only one measure of accruals quality, Jiang et al (2013) find no evidence of higher accruals quality when the CEO has financial expertise (in the context of their study, financial expertise did not necessarily include accounting expertise). The current study focuses on CEOs with the CA(SA) qualification as a measure of accounting expertise while controlling for other accounting and finance-related qualifications held by the CEO.…”

mentioning

confidence: 99%

“…The current study uses three measures of abnormal accruals (see below) to ensure robustness of results. Additionally, this study also controls for governance-level variables (for which Jiang et al (2013) do not control for) and a market incentive variable as recommended by Dechow et al (2010). Abnormal accruals are used as the measure of accruals quality (Dechow et al, 2010;Larker et al, 2007).…”

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confidence: 99%

Association between having a CA(SA) as CEO and accruals quality

Mey

Klerk

2015

Meditari Accountancy Research

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Purpose -The purpose of this paper is to examine whether Chartered Accountants South Africa (CAs(SA)) as Chief Executive Officers (CEOs) have an association with accruals quality. Design/methodology/approach -The theoretical base of this paper is the link between accounting expertise and accruals quality. The sample consists of 812 observations of Johannesburg Stock Exchange (JSE)-listed firms between 2010 and 2013. The association is tested by regressing the CA(SA) as CEO interest variable and control variables on accruals quality, using three metrics of abnormal accruals. Findings -The overall results suggest that less accruals management and estimation error is present when the CEO is a CA(SA). Originality/value -This is the first study to test the association between having a CEO with a professional accounting qualification, such as CA(SA), and accruals quality. The findings will be of interest to shareholders and top executives when evaluating the appointment of a CEO.

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CEO's financial experience and earnings management

Cited by 110 publications

References 34 publications

CEO financial background and internal control weaknesses

CEO financial background and internal control weaknesses

Female CEOs and Core Earnings Quality: New Evidence on the Ethics Versus Risk-Aversion Puzzle

Association between having a CA(SA) as CEO and accruals quality

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