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CEO ability and regulatory review risk

Author

Listed:
  • Reza Hesarzadeh
  • Ameneh Bazrafshan

Abstract

Purpose - Chief executive officer (CEO) ability may have an effect on various corporate reporting decisions, and consequently, the CEO ability is subject to scrutiny by regulatory reviewers. However, theoretical literature provides mixed evidence on how the CEO ability affects the regulatory review risk. Thus, this study aims to empirically examine the effect of CEO ability on regulatory review risk. Design/methodology/approach - To measure CEO ability, this study uses the CEO ability-score developed by Demerjianet al.(2012). Further, to measure regulatory review risk, the study uses the probability of receiving a comment letter from the Securities and Exchange Organization of Iran. Findings - This study finds that the relationship between CEO ability and regulatory review risk is generally negative and statistically significant but not economically significant, i.e. the relationship is very small. In this regard, the study shows that the relationship is negative and also statistically and economically significant for firms with low levels of agency conflicts and high levels of corporate governance quality; and is positive and also statistically and economically significant for firms with high levels of agency conflicts and low levels of corporate governance quality. In addition, while the study finds no evidence that the regulatory reviewers’ workload compression influences the general relationship between CEO ability and regulatory review risk, it documents that low (high) regulatory reviewers’ workload compression weakens (strengthens) both the relationships stated above. Originality/value - Collectively, the results suggest that the agency conflicts/corporate governance quality and regulatory reviewers’ workload compression are important factors in the analysis of the relationship between the CEO ability and regulatory review risk. The results offer insights into the opposing theoretical viewpoints about the relationship between CEO ability and regulatory review risk. Thus, the results will be of interest to boards of directors and other stakeholders involved in the regulatory review process.

Suggested Citation

  • Reza Hesarzadeh & Ameneh Bazrafshan, 2019. "CEO ability and regulatory review risk," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 34(5), pages 575-605, May.
    • Handle: RePEc:eme:majpps:maj-08-2018-1958
    DOI: 10.1108/MAJ-08-2018-1958
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    Citations

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    Cited by:

    1. Aflatooni, Abbas & Ghaderi, Kaveh & Mansouri, Kefsan, 2022. "Sanctions against Iran, political connections and speed of adjustment," Emerging Markets Review, Elsevier, vol. 51(PB).
    2. Kaveh Asiaei & Nick Bontis & Omid Barani & Ruzita Jusoh, 2021. "Corporate social responsibility and sustainability performance measurement systems: implications for organizational performance," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 32(1), pages 85-126, March.
    3. Oradi, Javad, 2021. "CEO succession origin, audit report lag, and audit fees: Evidence from Iran," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 45(C).
    4. Reza Hesarzadeh, 2020. "Regulatory oversight and managerial ability," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 10(4), pages 559-585, December.

    More about this item

    Keywords

    Corporate governance; Agency conflicts; Comment letters; Regulatory review risk; CEO ability; Heuristic cues theory; G32; M42; M48;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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