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| Type | Working Paper |
| Scope | Discipline-based scholarship |
| Title | Earnings management and managerial honesty: the investors’ perspectives |
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| Institution | University of Zurich |
| Series Name | Swiss Finance Institute Research Paper |
| Number | 17-03 |
| ISSN | 1556-5068 |
| Date | 2022 |
| Abstract Text | This paper studies how investors infer CEO commitment to honesty from earnings management and how these perceptions – in conjunction with investors’ own social and moral preferences – shape their investment choices. We conduct two laboratory experiments simulating investment choices. Our results show that participants perceive a CEO to be more committed to honesty when they infer that the CEO engaged less in earnings management. For investment decisions, a one standard deviation increase in a CEO's perceived commitment to honesty compared to another CEO reduces the relevance of differences in the CEOs’ claimed future returns by 40%. This effect is most prominent among investors with a proself value orientation. To prosocial investors, their own honesty values and those attributed to the CEO matter directly, while returns only play a secondary role. Overall, our results suggest that moral motives are not a niche concern for norm-constrained investors, but instead matter to different categories of investors for distinct reasons. |
| Digital Object Identifier | 10.2139/ssrn.2912795 |
| Other Identification Number | merlin-id:23159 |
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| Additional Information | forthcoming in "European Accounting Review" |