Financial Expert CEOS and Earnings Management Around Initial Public Offerings

46 Pages Posted: 24 May 2018

See all articles by Dimitrios Gounopoulos

Dimitrios Gounopoulos

University of Bath

Hang Pham

University of Essex - Essex Business School

Date Written: May 13, 2018

Abstract

This study examines the association between financial expert CEOs and earnings management (EM) around initial public offerings. We identify financial expert CEOs as those having past experience in either banking or investment firms, large auditing firms, or finance-related roles. We find strong evidence that newly listed firms with financial expert CEOs are less likely to engage in either accrual-based or real EM in the offering year than those with non-financial expert CEOs. In particular, our results are robust after controlling for the potential selection issue that occurs due to non-random matching of CEOs to firms. In addition, we employ alternative measures of financial expertise, including past experience in a CFO position, financial experience variety, and professional qualifications. We document that CEOs who used to work as CFOs and those who gained varied financial experience are less likely to manage earnings through both accruals and real activities. Moreover, CEOs who have a professional qualification in finance and/or accounting are also associated with lower accrual-based EM.

Keywords: IPOs,CEOs, financial expertise, earnings management

JEL Classification: G10, G14, G3

Suggested Citation

Gounopoulos, Dimitrios and Pham, Hang, Financial Expert CEOS and Earnings Management Around Initial Public Offerings (May 13, 2018). International Journal of Accounting, Vol. 53, No. 4, 2018, Available at SSRN: https://ssrn.com/abstract=3177760

Dimitrios Gounopoulos (Contact Author)

University of Bath ( email )

School of Management,
Wessex House, Claverton Down
Bath, BA2 7AY
United Kingdom

Hang Pham

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

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