CEO Profile and Earnings Quality
51 Pages Posted: 12 Dec 2016 Last revised: 9 Jan 2019
Date Written: December 10, 2016
This paper introduces the PSCORE, which aggregates nine personal characteristics of chief executive officers, to signal the quality of earnings. The PSCORE is a composite score based on publicly available data on CEOs. We find strong positive correlations between the PSCORE and the levels of discretionary accruals, a proxy for earnings quality. The findings also indicate that the PSCORE is positively correlated with financial statement errors, measured by the deviations of the first digits of figures reported in financial statements from what are expected by Benford’s Law. The associations remain statistically significant after controlling some important determinants of earnings quality and are not affected by confounding factors. We suggest some implications for practitioners.
Keywords: Earnings Quality; Benford’s Law; Chief Executive Officers
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