Corroborating upper echelons theory, this study picks up the notion that narcissistic chief executive officers take advantage of accounting choices to enhance their firms’—and inherently their own—personal track records. Using a set of 15 indicators, reflecting the narcissistic trait of 1126 CEOs for the period 1992 to 2012, we find evidence of highly narcissistic CEOs engaging in accrual-based earnings management. In contrast to prior research, the results show evidence not only for income-increasing but also for income-decreasing ABEM. This indicates that (...) highly narcissistic CEOs not only strive to influence stakeholders’ perception of current performance. We conclude that they also assess their potential to influence perception of current and future earnings. The results imply that highly narcissistic CEOs’ accounting choices are driven by self-serving behavior rather than by the intention to provide additional information to the market. When earnings management techniques are used to derive personal advantage from the presentation of a firm’s earnings, the literature refers to this as a case of low earnings quality reflecting unethical behavior. Accordingly, this study contributes to the field of business ethics by showing that CEO narcissism is related to low earnings quality in that it is associated to discretionarily decreasing accruals. (shrink)

Based on upper echelon theory, we employ machine learning to explore how CEO characteristics influence corporate violations using a large-scale dataset of listed firms in China for the period 2010–2020. Comparing ten machine learning methods, we find that eXtreme Gradient Boosting (XGBoost) outperforms the other models in predicting corporate violations. An interpretable model combining XGBoost and SHapley Additive exPlanations (SHAP) indicates that CEO characteristics play a central role in predicting corporate violations. Tenure has the strongest predictive power and is negatively (...) associated with corporate violations, followed by marketing experience, education, duality (i.e., simultaneously holding the position of chairperson), and research and development experience. In contrast, shareholdings, age, and pay are positively related to corporate violations. We also analyze violation severity and violation type, confirming the role of tenure in predicting more severe and intentional violations. Overall, our findings contribute to preventing corporate violations, improving corporate governance, and maintaining order in the financial market. (shrink)

When firm misconduct comes to light, CEOs are often faced with difficult decisions regarding whether and how to respond to stakeholder demands as they attempt to restore their firms’ legitimacy. Prior research largely assumes that such decisions are motivated by CEOs’ calculated attempts to manage stakeholder impressions. Yet, there are likely other motives, particularly those of a morally-relevant nature, that might also be influencing CEOs’ decisions. To address this limitation, we advance moral cleansing as an alternative explanation for how and (...) why CEOs lead their firms to respond to stakeholder demands following the firm’s misconduct and, in turn, whether they can successfully restore their firm’s legitimacy. In the context of firm misconduct, moral cleansing motives reflect CEOs’ desire to restore their threatened moral self-image resulting from the misconduct. We theorize that a CEO’s moral cleansing motives increase the likelihood that their firm will engage in a series of reparative responses that can restore the firm’s legitimacy (i.e., discovery, explanation, penance, and rehabilitation). In addition, we explicate the unique implications of CEOs’ moral cleansing in a post-misconduct context by theorizing how such motives may simultaneously improve one form of their firms’ legitimacy while hindering another. Specifically, we theorize that CEOs’ moral cleansing motives increase (decreases) the authenticity (strategic cognition) of their firm responses, which strengthens (weakens) the effectiveness of those responses on the firms’ ability to restore its moral (pragmatic) legitimacy with stakeholders. We conclude with a discussion of the implications of this work. (shrink)

Prior research indicates that managers’ dark personality traits increase their tendency to engage in disruptive and unethical organizational behaviors including accounting earnings management. Other research suggests that the prevalence of dark personalities in management may represent an accidental byproduct of selecting managers with accompanying desirable attributes that fit the stereotype of a “strong leader.” Our paper posits that organizations may hire some managers who have dark personality traits because their willingness to push ethical boundaries aligns with organizational objectives, particularly in (...) the accounting context where ethical considerations are especially important. Using several validation studies and experiments, we find that experienced executives and recruiting professionals favor hiring a candidate with dark personality traits into an accounting management position over an otherwise better-qualified candidate when the hiring organization faces pressure to manage earnings. Our results help to illuminate why individuals with dark personality traits may effectively compete for high-level accounting positions. (shrink)

We examine managers’ earnings forecasts for evidence of incentive alignment or subversion characteristics. We find that forecasts by managers compensated via relative performance (RP) goals are more likely to be pessimistic and less accurate than those by managers compensated via absolute performance (AP) goals. For firms not issuing earnings forecasts, disclosures in Form 10-Ks are more pessimistic for RP firms than for AP firms. Furthermore, we find that RP firms perform worse than AP firms in terms of future stock returns. (...) Overall, our evidence is consistent with a proposition that, contrary to sound ethical business practices, RP managers make self-serving earnings disclosures to subvert the efforts of their peers to meet performance targets more easily. (shrink)

We examine the influence of face-based judgments of CFO and CEO honesty on earnings management for the largest publicly traded companies in America. After controlling for incentives and opportunities to manage earnings, CFOs perceived to be less honest engage in higher levels of accruals earnings management and real earnings management. The beneficial impact of perceived honesty on earnings quality is most pronounced when both the CFO and the CEO are perceived to be more honest. Findings are consistent with our conjecture (...) that both the CFO and CEO contribute to a firm’s financial reporting environment. (shrink)