Religious CEOS and Earnings Informativeness

Abstract

This study compares the earnings informativeness of firms with religious CEOs with firms without religious CEOs. We manually collect the religious affiliation of ExecuComp CEOs through Marquis Who’s Who and other sources. Our results show that firms with religious CEOs have more informative earnings compared with firms with non-religious CEOs. Also, there is a stronger association between current earnings and future cash flows for firms with religious CEOs than for firms with non-religious CEOs. Additionally, we find that the positive impact of religious CEOs on earnings informativeness is more pronounced when investors face high uncertainty of information contained in the 10-K (i.e., low 10-K readability), when firms are located in areas with lower religious social norms, and when firms have weaker corporate governance. Lastly, we find that earnings are more conservative for firms with religious CEOs than for firms with non-religious CEOs. Overall, our results suggest that CEO religion plays an important role for earnings attributes and our findings are informative to financial statement users and policymakers in understanding the role of CEO personal religion on corporate outcomes.

Keywords: Religious CEO, Earnings informativeness, Earnings conservatism, Cash flows