CEOs’ Experience of the Great Chinese Famine and Accounting Conservatism

53 Pages Posted: 13 Mar 2019 Last revised: 12 Apr 2019

See all articles by Jun Hu

Jun Hu

Hainan University

Wenbin Long

Guangdong Polytechnic Normal University

Gary Gang Tian

Macquarie University - Department of Applied Finance and Actuarial Studies; Macquarie University, Macquarie Business School

Daifei Yao

Queensland University of Technology - School of Accountancy

Date Written: November 1, 2018

Abstract

This paper examines the link between adverse early-life experiences of CEOs and accounting policy choice, in particular whether a CEO’s experience of the Great Chinese Famine impacts the accounting conservatism of his or her company. Our results show that companies whose CEOs had famine experience in early life adopt more conservative accounting policies. We also find that the positive association between a CEO’s famine experience and the company’s accounting conservatism is moderated by the structure of firm ownership and environmental uncertainty arising from turnover among core government officials and the adoption of International Financial Reporting Standards (IFRS). Additional tests identify two direct links between the famine experiences of CEOs and the accounting conservatism of the company. CEOs who experienced famine are more likely to conservatively recognise and disclose contingencies as well as asset impairments resulting from negative events, which is consistent with our main result. Overall, our results are robust for a battery of robustness tests, and they support the ‘risk-averse’ view that CEOs will apply the risk sensitivity learned from the Chinese famine experience to the company’s accounting policy decisions to meet the obligations of the contracting parties and other stakeholders.

Keywords: CEO Famine Experience, Accounting Conservatism, Risk-Taking, CEO Behaviour

JEL Classification: M12, M41

Suggested Citation

Hu, Jun and Long, Wenbin and Tian, Gary Gang and Yao, Daifei, CEOs’ Experience of the Great Chinese Famine and Accounting Conservatism (November 1, 2018). Macquarie University Faculty of Business & Economics Research Paper. Available at SSRN: https://ssrn.com/abstract=3351462 or http://dx.doi.org/10.2139/ssrn.3351462

Jun Hu

Hainan University

No. 58, Renmin Avenue
570228, P.R.
Haikou, HainanProvince
China

Wenbin Long

Guangdong Polytechnic Normal University ( email )

293 Zhongshan Middle Ave
Guangzhou, Tianhe 510665
China

Gary Gang Tian (Contact Author)

Macquarie University - Department of Applied Finance and Actuarial Studies ( email )

Room 513, Building E4A
North Ryde, NSW, 2109
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Daifei Yao

Queensland University of Technology - School of Accountancy

2 George Street
Brisbane, Queensland 4000
Australia

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