Testosterone and Financial Misreporting
Frankfurt School of Finance and Management
Laurence Van Lent
Tilburg University - CentER for Economic Research and Dept. of Accounting
Tilburg University - Department of Accounting & Accountancy; Tilburg University - Center for Economic Research (CentER)
April 23, 2014
We examine the relation between a measure of a male CEO’s facial masculinity and financial misreporting. Facial masculinity is associated with a complex of masculine behaviors (including aggression, egocentrism, risk-seeking, and maintenance of social status) in males. One mechanism for this relation assumes that facial structures are associated with testosterone exposure during puberty. We document, in a broad sample of S&P 1500 firms during 1996-2010, a positive association between CEO facial masculinity and Dechow et al. ’s misreporting proxies. We complement this evidence by documenting that CEO facial masculinity predicts his firm’s likelihood of being subject to an SEC enforcement action. We also show that an executive’s facial masculinity is associated with his likelihood of being named as a perpetrator by the SEC. We find that facial masculinity is not a measure of overconfidence. Finally, we demonstrate that facial masculinity also predicts the incidence of insider trading and option backdating.
Number of Pages in PDF File: 95
Keywords: Financial misreporting, neuroendocrinology, testosterone exposure, craniofacial growth, facial structure
JEL Classification: M12, M20, M40, M50, Z00working papers series
Date posted: May 16, 2013 ; Last revised: April 24, 2014
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