The influence of individual executives on corporate financial reporting: A review and outlook from the perspective of upper echelons theory

Abstract

In recent years, numerous studies have investigated whether individual executives and their characteristics relate to financial reporting choices. In this article, we review archival, experimental and survey research on the influence of individual executives on corporate financial reporting and use upper echelons theory as our organizing framework. Our review of 60 studies shows that research consistently finds that top management executives exert significant influence on financial reporting decisions, particularly on disclosure quality. Empirical research has developed promising approaches to investigate executives' psychological attributes and character traits. The results of studies examining the influence of demographic characteristics of individual executives are, however, sometimes contradictory and ambiguous. Nevertheless, the overall empirical results we review are supportive of upper echelons predictions. Additional research in this field is needed to clarify the influence of unexamined upper echelon characteristics, important moderator variables, and adverse selection effects. We also suggest that future research more closely investigates the magnitudes of managerial influence and adopts a more holistic perspective on financial reporting outcomes.

Measuring executive personality using machine‐learning algorithms: A new approach and audit fee‐based validation tests

“…In their comprehensive review of relevant literature, Plöckinger et al. () summarize 60 studies, most of which support the view that management executive characteristics are reflected in various financial reporting outcomes (we refer the reader to Table by Plöckinger et al., which summarizes each study by highlighting the managerial positions examined, the proxies used for upper echelons characteristics, and what accounting choices/consequences were tested). Given the difficulty of measuring personality traits for large samples of top‐level executives (which often requires the administration of surveys or detailed interviews) and the significance of the upper echelons theory, Plöckinger et al.…”

“…Upper echelons theory predicts that organizational outcomes are ‘reflections of the values and cognitive biases of powerful actors’ and that individual executives have a significant influence on corporate policies and activities (Hambrick & Mason, , p. 193). While accounting is subject to greater regulation than other corporate activities, research in accounting finds that top managers, particularly CEOs and CFOs, also exert significant influence on financial reporting decisions (Plöckinger, Aschauer, Hiebl, & Rohatschek, ). As research on upper echelons theory has grown, so too has the interest in developing proxies for the individual traits of executives.…”

“…Plöckinger et al. () call for additional research to continue the development and validation of meaningful measures to enable closer links between managerial idiosyncrasies and financial reporting choices, and our research is motivated by this call. The purpose of this paper is to propose a new approach to measure executive personality in a large sample setting.…”

Causal language intensity in performance commentary and financial analyst behaviour

“…Bamber et al (2010) find that top managers have an economically significant impact on their firms' voluntary disclosures. Personal background of executives plays an important role in disclosure style and affects disclosure quality (Plöckinger, Aschauer, Hiebl, & Rohatschek, 2016).…”

Psychopathic traits of corporate leadership as predictors of future stock returns

“…Hambrick and Mason (1984) encourage the use of observable proxies for the differences in managerial cognitions and values. In their reviews, Carpenter, Geletkanycz, and Sanders (2004) and Plöckinger, Aschauer, Hiebl, and Rohatschek (2016) note that the body of literature produced 2 In a follow-up paper, Boddy and Taplin (2017) argue that these estimates may understate the psychopathic bullying problem due to the peculiarities of scales used in the research. thus far in this field has, to a large extent, supported the baseline Hambrick and Mason (1984) model, although extensions of the original framework have been proposed.…”