CEO Profile and Earnings Quality
Forthcoming, Review of Quantitative Finance and Accounting
51 Pages Posted: 12 Dec 2016 Last revised: 17 Jul 2020
Date Written: July 17, 2020
Abstract
This paper introduces the PSCORE, which aggregates nine personal characteristics of chief executive officers (CEOs), to signal the quality of earnings. The PSCORE is a composite score based on publicly available data on CEOs. The study reports strong positive relationships between the PSCORE and two different proxies for earnings quality, (i) discretionary accruals and (ii) financial statement errors, measured by deviations of the first digits of figures reported in financial statements from those expected by Benford’s Law. Further analyses indicate that the relationships between the PSCORE and the proxies for earnings quality become more pronounced when CEOs have high equity-based compensation incentives. The findings have some implications for practitioners.
Keywords: Earnings Quality; Benford’s Law; Chief Executive Officers
JEL Classification: G34, M41
Suggested Citation: Suggested Citation