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CEO IQ and earnings quality in private firms

Author

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  • Emma-Riikka Myllymäki
  • Seppo Ikäheimo
  • Yaping Mao

Abstract

We use comprehensive data on Finnish private firms with bank financing to examine the effect of CEO cognitive ability, specifically intellectual quotient (IQ), on the ability of earnings to predict future operating cash flow. While prior research has largely focused on public firms and typically inferred managerial ability from firm efficiency measures and acquired competencies, our study provides new insights by examining the innate, pre-labour market cognitive ability of CEOs. Our findings indicate that higher CEO IQ enhances the predictive ability of earnings for future cash flows, suggesting improved earnings quality. This association is more pronounced if the firm increases its bank debt in the future or has higher credit risk. Overall, this study contributes to the underexplored area of individual CEO cognitive abilities in relation to earnings quality, specifically focusing on private firms with bank debt.

Suggested Citation

  • Emma-Riikka Myllymäki & Seppo Ikäheimo & Yaping Mao, 2026. "CEO IQ and earnings quality in private firms," Accounting and Business Research, Taylor & Francis Journals, vol. 56(5), pages 691-715, July.
    • Handle: RePEc:taf:acctbr:v:56:y:2026:i:5:p:691-715
    DOI: 10.1080/00014788.2025.2521109
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