78 Pages Posted: 18 Aug 2012 Last revised: 17 Nov 2016
Date Written: November 1, 2016
This study forwards a linguistic-based measure of the important but difficult-to-operationalize trait of CEO integrity. We contend low-integrity CEOs lack credibility when communicating, which creates a demand for explanations beyond that created by existing firm-specific or other CEO characteristics. We derive and validate a dictionary to capture explanations, and apply the dictionary to a sample of over 30,000 annual CEO shareholder letters. We then benchmark the supply of explanations in shareholder letters against firm and CEO-specific characteristics, including explanations provided in the MD&A, which allows us to use the firm as its own control. Relatively excessive explanations serve as our linguistic-based proxy for relatively low-integrity CEOs. Low-integrity CEOs, based on our measure, receive lower integrity ratings from subordinates, are perceived unfavorably by employees generally, are more likely to receive a tone-at-the-top material weakness and a higher fee from their auditor, provide lower quality accruals prior to Sarbanes-Oxley, are more likely to receive backdated options, and have inferior future firm performance.
Keywords: Integrity, Performance evaluation, Behavioral traits, Linguistic textual analysis
JEL Classification: M40, J10
Suggested Citation: Suggested Citation
Dikolli, Shane S. and Keusch, Thomas and Mayew, William J. and Steffen, Thomas D., A Linguistic-Based Approach to Measuring Innate Executive Traits: The Case of CEO Integrity (November 1, 2016). Available at SSRN: https://ssrn.com/abstract=2131476 or http://dx.doi.org/10.2139/ssrn.2131476
By David Hess