Through the Eyes of the Founder: CEO Characteristics and Firms' Regulatory Filings

59 Pages Posted: 4 May 2017 Last revised: 13 May 2018

Bradley E. Hendricks

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Mark H. Lang

University of North Carolina at Chapel Hill

Kenneth J. Merkley

Indiana University - Kelley School of Business - Department of Accounting

Date Written: May 1, 2018

Abstract

We examine whether textual attributes of firms’ regulatory filings reflect CEO characteristics and whether investors consider this relation when assessing firm value. We build on prior research that shows founders have unique personality attributes, particularly overoptimism. We find that 10-K text for founder-led firms is characterized by “excess” optimism relative to current and future realized earnings and relative to non-founder-led firms. The effect is mitigated for firms with large auditors, high litigation risk and high analyst following. Based on stock price at the 10-K release, investors do not appear to appropriately discount the tone, resulting in predictable negative returns during the year subsequent to the 10-K release, particularly for the first two years after firms go public. To bolster the conclusion that CEOs influence text, we provide broad sample evidence that CEO fixed effects are significantly related to several textual attributes.

Keywords: Regulatory Filings, Mandatory Disclosure, Founder, Managerial Style, CEO

JEL Classification: G14, G18, L26, M41

Suggested Citation

Hendricks, Bradley E. and Lang, Mark H. and Merkley, Kenneth J., Through the Eyes of the Founder: CEO Characteristics and Firms' Regulatory Filings (May 1, 2018). Available at SSRN: https://ssrn.com/abstract=2962806 or http://dx.doi.org/10.2139/ssrn.2962806

Bradley E. Hendricks (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
(919) 962-3619 (Phone)

Mark H. Lang

University of North Carolina at Chapel Hill ( email )

Kenan-Flagler Business School
McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-1644 (Phone)
919-962-4727 (Fax)

Kenneth J. Merkley

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

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