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Investing in managerial honesty

Author

Listed:
  • Gibson, Rajna
  • Sohn, Matthias
  • Tanner, Carmen
  • Wagner, Alexander F

Abstract

Two laboratory experiments show that investors perceive a CEO to be more committed to honesty when the CEO resisted, at a personal cost, engaging 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 prominent among investors with a proself value orientation. To prosocial investors, their own honesty values and those attributed to the CEO matter directly; returns play a secondary role. Overall, CEO honesty matters to different investors for distinct reasons.

Suggested Citation

  • Gibson, Rajna & Sohn, Matthias & Tanner, Carmen & Wagner, Alexander F, 2018. "Investing in managerial honesty," CEPR Discussion Papers 13207, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:13207
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    References listed on IDEAS

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    Cited by:

    1. Pham, Mia Hang, 2020. "In law we trust: Lawyer CEOs and stock liquidity," Journal of Financial Markets, Elsevier, vol. 50(C).

    More about this item

    Keywords

    Earnings management; honesty; investor preferences; investor segmentation; protected values; social value orientation; Trust;

    JEL classification:

    • G0 - Financial Economics - - General

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