CEO IQ and earnings quality in private firms

Emma-Riikka Myllymäki (), Seppo Ikäheimo and Yaping Mao
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Emma-Riikka Myllymäki: Audencia Business School
Yaping Mao: Qinghai Normal University

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Abstract: We use comprehensive data on Finnish private firms with bank financing to examine the effect of CEO cognitive ability, specifically intellectual quotient (IQ), on the ability of earnings to predict future operating cash flow. While prior research has largely focused on public firms and typically inferred managerial ability from firm efficiency measures and acquired competencies, our study provides new insights by examining the innate, pre-labour market cognitive ability of CEOs. Our findings indicate that higher CEO IQ enhances the predictive ability of earnings for future cash flows, suggesting improved earnings quality. This association is more pronounced if the firm increases its bank debt in the future or has higher credit risk. Overall, this study contributes to the underexplored area of individual CEO cognitive abilities in relation to earnings quality, specifically focusing on private firms with bank debt.

Keywords: bank loan; private firms; cognitive ability; cognitive ability private firms bank loan cash flow predictability; cash flow predictability; Bank loan; Private firms; Cognitive ability (search for similar items in EconPapers)
Date: 2026
New Economics Papers: this item is included in nep-neu
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Published in Accounting and Business Research, 2026, 56 (5), pp.691-715. ⟨10.1080/00014788.2025.2521109⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05740868

DOI: 10.1080/00014788.2025.2521109

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