Publication Type

Journal Article

Version

acceptedVersion

Publication Date

10-2024

Abstract

Despite efforts to mitigate aggressive financial reporting, earnings management remains challenging to parties interested in inhibiting its dysfunctional effects. Using linguistic algorithms to assess CEO agreeableness personality from their unscripted texts in conference calls, we find that it is a determinant that mitigates a firm's real earnings management. Furthermore, such an effect is more pronounced when firms confront intensive market competition and financial distress and have weaker managerial entrenchment or when CEOs face stronger internal governance. Our findings persist even after we utilize several alternative real earnings management metrics and control other confounding personalities in prior earnings management studies. The subsample analysis and a two-step endogeneity controlling analysis further support that our results are not driven by the endogeneity in CEO selection process. Our study enriches the upper echelons theory, especially in the personality-situation interaction perspective, and provides insights for firms to incorporate managers' ethical-oriented personality into the mechanisms of curbing real earnings management.

Keywords

Agreeableness, Business ethics, CEO personality, Real earnings management

Discipline

Business Law, Public Responsibility, and Ethics | Databases and Information Systems | Leadership Studies | Numerical Analysis and Scientific Computing

Research Areas

Data Science and Engineering

Areas of Excellence

Digital transformation

Publication

International Review of Financial Analysis

Volume

95

First Page

1

Last Page

22

ISSN

1057-5219

Identifier

10.1016/j.irfa.2024.103458

Publisher

Elsevier

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1016/j.irfa.2024.103458

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