We examine the relation between a measure of male CEOs’ facial masculinity and financial misreporting. Facial masculinity is associated with a complex of masculine behaviors (including aggression, egocentrism, riskseeking, and maintenance of social status) in males. One possible mechanism for this relation is that the hormone testosterone influences both behavior and the development of the face shape. We document a positive association between CEO facial masculinity and various misreporting proxies in a broad sample of S&P1500 firms during 1996–2010. We complement this evidence by documenting that a CEO's facial masculinity predicts his firm's likelihood of being subject to an SEC enforcement action. We also show that an executive's facial masculinity is associated with the likelihood of the SEC naming him as a perpetrator. We find that facial masculinity is not a measure of overconfidence. Finally, we demonstrate that facial masculinity also predicts the incidence of insider trading and option backdating.
We investigate the degree to which including a clawback provision in executive compensation contracts is an effective governance mechanism by documenting the impact of clawback adoption on stock prices. We expect this ex post settling-up mechanism to be beneficial because it diminishes financial reporting risks. In support of our hypotheses, we find that the shareholders of adopting firms experience statistically significant positive stock-valuation consequences relative to propensity-score-matched control samples. Further, firms with previous financial restatements had the largest economic gains, suggesting that a clawback policy can be effective at curtailing incentives for earnings manipulation. Analysis of the bid-ask spread provides evidence that these provisions contribute to reducing financial reporting risk for restating firms, while non-restating firms experience no change in the spread. We find no evidence that clawback provisions entail costs in the form of higher CEO compensation following adoption nor do they influence the design of compensation contracts. JEL Classifications: G30; G34; G38; K12; K22. Data Availability: Data are available from sources identified in the paper.
Research Summary: To examine whether firms use corporate social responsibility (CSR) to insure against stock price risk, we exploit an exogenous shock in stock price risk associated with Regulation SHO whereby the SEC randomly selected pilot firms for which the uptick restriction on short sales no longer applied. A difference-in-differences test reveals that pilot firms increased CSR more than nonpilot firms and that in particular they reduced CSR concerns and increased CSR that impacts stakeholders involved in direct resource exchange. We also find that pilot firm CSR reduced short positions against them and that the effect is stronger for CSR concerns and CSR that impacts directly connected stakeholders. Overall, we document a causal effect of stock price risk on managerial incentives to invest in CSR for risk management. Managerial Summary: Corporate social responsibility has many purported benefits, one of which is that it can insure against the adverse stock price effects of negative events.But do managers purposefully use CSR in this way and do such investments provide intended insurance-like benefits?By taking advantage of a natural experiment where a randomly selected set of pilot firms were exposed to elevated short-sale risk unleashed by the SEC regulation, we find evidence that they do. Once the SEC initiated the regulatory
We test whether internal control weaknesses (ICWs) endanger cash resources that manifests in a lower value of cash. Our results indicate that investors value liquid assets in ICW firms substantially less than they do in non-ICW firms. The negative valuation effect of weak internal control mainly concentrates on ICWs related to the control environment or overall financial reporting process. While firms remediating ICWs reverse the value loss from holding cash, firms whose internal control deteriorates or remains ineffective exhibit a lower value of cash. The marginal effect of ICWs on the value of cash remains significant after controlling for existing governance mechanisms and accounting conservatism, highlighting a unique governance role of internal control in mitigating unresolved agency problems and safeguarding corporate resources.Contrôle interne relatif a l'information financi ere et protection des ressources de l'entreprise: constats li es a la valeur des liquidit es R ESUM ELes auteurs se demandent si les d eficiences du contrôle interne (DCI) exposent l'entreprise au danger d'une diminution de la valeur des liquidit es qu'elle d etient. Les r esultats de leur etude r ev elent que les investisseurs attribuent aux actifs liquides des soci et es affichant des DCI une valeur sensiblement moindre qu' a ceux des soci et es sans DCI. Cette incidence n egative des DCI sur l' evaluation s'observe principalement dans le cas des DCI li ees a l'environnement de contrôle ou au processus global d'information financi ere. Si les soci et es qui rem edient aux DCI redressent ainsi la valeur des liquidit es qu'elles d etiennent, les soci et es dont la qualit e du contrôle interne se d et eriore ou ne progresse pas affichent une valeur moindre des liquidit es. L'incidence marginale des DCI sur la valeur des liquidit es demeure importante une fois contrôl es les m ecanismes de gouvernance existants et la prudence comptable, ce qui met en relief le rôle de gouvernance particulier du contrôle interne dans l'att enuation des probl emes non r esolus li es a la d el egation et la protection des ressources de l'entreprise.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.
hi@scite.ai
10624 S. Eastern Ave., Ste. A-614
Henderson, NV 89052, USA
Copyright © 2024 scite LLC. All rights reserved.
Made with 💙 for researchers
Part of the Research Solutions Family.