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Tone at the top: CEOs’ religious beliefs and earnings management

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  • Cai, Ye
  • Kim, Yongtae
  • Li, Siqi
  • Pan, Carrie

Abstract

Diverging from recent research that focuses on the effect of community religion on corporate outcomes, we study how top executives’ personal religiosity affects corporate transparency. Using educational experience in church-affiliated colleges as a proxy for CEOs’ religiosity, we show that firms with religious CEOs are associated with significantly less earnings management than firms with non-religious CEOs. Our results are robust to using matched samples and a difference-in-differences analysis based on voluntary CEO turnovers. The effect of CEO religiosity on earnings management is more pronounced when firms use more equity-based CEO compensation or when firms face higher operating cash flows volatility, and the effect is weaker in the post-SOX period. We also find evidence that firms with religious CEOs are less likely to engage in real earnings management. Taken together, our findings suggest an important role of CEOs’ religious beliefs in shaping corporate policies.

Suggested Citation

  • Cai, Ye & Kim, Yongtae & Li, Siqi & Pan, Carrie, 2019. "Tone at the top: CEOs’ religious beliefs and earnings management," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 195-213.
    • Handle: RePEc:eee:jbfina:v:106:y:2019:i:c:p:195-213
    DOI: 10.1016/j.jbankfin.2019.06.002
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    4. Ines Gharbi & Mounira Hamed‐Sidhom & Khaled Hussainey & Janet Ganouati, 2021. "Religiosity and financial distress in U.S. firms," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3902-3915, July.
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    8. Kim, Jeong-Bon & Liao, Shushu & Liu, Yangke, 2021. "Married CEOs and Stock Price Crash Risk," QBS Working Paper Series 2021/09, Queen's University Belfast, Queen's Business School.
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    More about this item

    Keywords

    Religion; CEO characteristics; Earnings management; Educational experience;
    All these keywords.

    JEL classification:

    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • Z12 - Other Special Topics - - Cultural Economics - - - Religion

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