Earnings Management and the Role of Moral Values in Investing

Rajna Gibson Brandon, Matthias Sohn, Carmen Tanner and Alexander Wagner

No 13207, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: In this study, we use earnings management to examine (1) how investors regard a CEO’s commitment to honesty and (2) the impact of their perceptions, in light of their own moral values, on their investment decisions. In two laboratory experiments using students as investor proxies, we find that investors perceive a CEO as being more committed to honesty when they believe the CEO has engaged less in earnings management. A one standard deviation increase in a CEO’s perceived commitment to honesty, compared to that of another CEO, leads to a 40% reduction in the importance the investors assigned, when making investment decisions, to differences in the two CEOs’ claimed future returns. This effect is particularly pronounced among investors with a proself value orientation. For prosocial investors, their moral values and those they attribute to the CEO directly influence their investment decisions, with returns playing a secondary role. Our findings contrast with the idea, implicit in the literature on ‘sin’ stocks, that morality is a niche concern. By contrast, we find that moral values play a significant role for distinct types of investors and that they influence investment decisions for both moral and pecuniary reasons.

Keywords: Earnings management; Honesty; Investor preferences; Investor segmentation; Protected values; Social value orientation; Trust (search for similar items in EconPapers)
JEL-codes: G0 (search for similar items in EconPapers)
Date: 2018-09
New Economics Papers: this item is included in nep-cfn, nep-exp and nep-hpe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://cepr.org/publications/DP13207 (application/pdf)

Related works:
Working Paper: Earnings Management and the Role of Moral Values in Investing (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:13207

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP13207

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().