Tone at the top: CEOs’ religious beliefs and earnings management

Ye Cai, Yongtae Kim, Siqi Li and Carrie Pan

Journal of Banking & Finance, 2019, vol. 106, issue C, 195-213

Abstract: Diverging from recent research that focuses on the effect of community religion on corporate outcomes, we study how top executives’ personal religiosity affects corporate transparency. Using educational experience in church-affiliated colleges as a proxy for CEOs’ religiosity, we show that firms with religious CEOs are associated with significantly less earnings management than firms with non-religious CEOs. Our results are robust to using matched samples and a difference-in-differences analysis based on voluntary CEO turnovers. The effect of CEO religiosity on earnings management is more pronounced when firms use more equity-based CEO compensation or when firms face higher operating cash flows volatility, and the effect is weaker in the post-SOX period. We also find evidence that firms with religious CEOs are less likely to engage in real earnings management. Taken together, our findings suggest an important role of CEOs’ religious beliefs in shaping corporate policies.

Keywords: Religion; CEO characteristics; Earnings management; Educational experience (search for similar items in EconPapers)
JEL-codes: I23 J24 M41 Z12 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:106:y:2019:i:c:p:195-213

DOI: 10.1016/j.jbankfin.2019.06.002

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