Does CEO agreeableness personality mitigate real earnings management?

Shan Liu, Xingying Wu and Nan Hu

International Review of Financial Analysis, 2024, vol. 95, issue PB

Abstract: Despite efforts to mitigate aggressive financial reporting, earnings management remains challenging to parties interested in inhibiting its dysfunctional effects. Using linguistic algorithms to assess CEO agreeableness personality from their unscripted texts in conference calls, we find that it is a determinant that mitigates a firm's real earnings management. Furthermore, such an effect is more pronounced when firms confront intensive market competition and financial distress and have weaker managerial entrenchment or when CEOs face stronger internal governance. Our findings persist even after we utilize several alternative real earnings management metrics and control other confounding personalities in prior earnings management studies. The subsample analysis and a two-step endogeneity controlling analysis further support that our results are not driven by the endogeneity in CEO selection process. Our study enriches the upper echelons theory, especially in the personality-situation interaction perspective, and provides insights for firms to incorporate managers' ethical-oriented personality into the mechanisms of curbing real earnings management.

Keywords: CEO personality; Agreeableness; Real earnings management; Business ethics (search for similar items in EconPapers)
JEL-codes: M40 M41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:95:y:2024:i:pb:s1057521924003909

DOI: 10.1016/j.irfa.2024.103458

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