Financial Expert CEOs and Earnings Management around Initial Public Offerings (IPOs)
45 Pages Posted: 16 Oct 2016 Last revised: 20 May 2018
Date Written: November 7, 2017
We study whether the financial experience of chief executive officers (CEOs) is associated with earnings management around initial public offerings (IPOs). Examining the sample of U.S. initial public offerings (IPOs) from 2003 to 2011, we find that newly listed firms with financial expert CEOs are less likely to engage in earnings management than those with non-financial expert CEOs. We also document that for IPO firms managed by financial expert CEOs the at-issue earnings management is positively associated with future accounting performance and not significantly related to post-issue long-term stock abnormal returns. This indicates that financial expert CEOs tend to be informative in financial reporting in order to allow investors to properly gauge the fair value of the firm. Overall, our findings support the importance of CEO financial experience in the provision of higher quality financial reporting.
Keywords: IPOs, Financial expertise, CEOs, Earnings management
JEL Classification: G10, G14, G3
Suggested Citation: Suggested Citation