CEO Endowed Trait and Financial Reporting Conservatism: Evidence from Pilot CEOs

Abstract

Psychological and upper echelons theories suggest that CEO personality traits, such as sensation seeking, shape corporate policies. In gauging sensation seeking with whether the CEO holds a pilot license, we examine the importance of this CEO endowed trait to firms’ financial reporting decision. We find that CEO sensation seeking is inversely associated with financial reporting conservatism (i.e., timely recognition of bad news relative to good news in earnings). This result holds in extensive sensitivity analyses, including controlling for alternative CEO overconfidence measures and a series of additional CEO characteristics and confronting potential endogeneity threats with several techniques. Finally, in a series of cross-sectional tests, we find no evidence that the negative relation we document varies systematically with external monitoring and CEO power, consistent with prior research implying that intrinsic motivation from CEO endowed traits dominates potential constraints from extrinsic forces.

Keywords: CEO personality traits; sensation seeking; accounting conservatism