CEOs’ Great Chinese Famine Experience and Accounting Conservatism: Evidence from China

Abstract

This paper intends to link CEOs’ adverse early-life experiences to accounting policy choice, by investigating whether a CEO’s Great Chinese Famine experience impacted on corporate accounting conservatism. Our results show that companies whose CEOs had famine experience in their early life used more conservative accounting. We also find that the positive association between the CEO’s famine experience and accounting conservatism is moderated by firm ownership structure and environmental uncertainties. Additional tests suggest that the CEOs who experienced famine during their youth had a greater impact on accounting conservatism. By using the exogenous variation in local severity of the famine, we confirm the causal relationship between CEOs’ early-life famine experience and the level of accounting conservatism. Our study contributes to the accounting policy choice literature, and results are robust for several other robustness tests. We argue that the CEO will apply the risk sensitivity learned from the famine experience to the company’s accounting policy decisions to meet the obligations of the contracting parties and other stakeholders.

Keywords: Accounting Conservatism, CEO life experience, corporate governance

JEL Classification: M41