It Is Not Only What You Know, It Is Also Who You Know: CEO Network Connections and Financial Reporting Quality

Bhandari, Avishek; Mammadov, Babak; Shelton, Austin; Thevenot, Maya

doi:10.2308/ajpt-51821

Cited by 36 publications

(28 citation statements)

References 69 publications

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“…To our knowledge, only two studies have investigated the relationship between CEO social connections and financial reporting quality (Bhandari et al, 2018;Griffin et al, 2021). These studies document that CEO social connections decrease accrual earnings management (Bhandari et al, 2018) while increasing real earnings management (Griffin et al, 2021). These contrasting findings raise the question of whether CEO social connections increase or decrease classification shifting, which is empirically investigated in our study.…”

Section: Introductionmentioning

confidence: 72%

“…El-Khatib et al, 2015;Engelberg et al, 2013;Goergen et al, 2019;Renneboog & Zhao, 2011. To our knowledge, only two studies have investigated the relationship between CEO social connections and financial reporting quality (Bhandari et al, 2018;Griffin et al, 2021). These studies document that CEO social connections decrease accrual earnings management (Bhandari et al, 2018) while increasing real earnings management (Griffin et al, 2021).…”

Section: Introductionmentioning

confidence: 99%

“…In the context of CEO social connections, both the assumptions of the optimal contacting perspective, used by Bhandari et al (2018) in relation to accrual earnings management, and those of the rent extraction perspective, used by Griffin et al (2021) in relation to real earnings management, can potentially explain the use of classification shifting. According to the optimal contracting perspective, well-connected CEOs avoid the use of corporate practices that can undermine their reputation (Francis et al, 2008).…”

Section: Introductionmentioning

confidence: 99%

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Do CEO social connections promote corporate malpractices? Evidence from classification shifting

Malikov

Gaia

2021

Accounting Forum

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This paper examines the effect of CEOs' external social connections with other executives and directors on classification shifting, a widespread malpractice that inflates core earnings by altering the presentation of income statement line items without affecting bottom-line income. Using a sample of 995 UK listed firms in the period 2005 to 2016 and relying on the assumptions of social capital theory and the rent-extraction perspective, we find that CEOs with a larger number of external connections are more likely to engage in classification shifting. Further results indicate that this phenomenon occurs particularly when well-connected CEOs are local and/or are in the early years of their service. Collectively, the results suggest that social connections promote corporate malpractices that are unlikely to cause reputational losses. Overall, we contribute to the literature by providing evidence that the social capital of the CEO is an important driver of classification shifting.

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Section: Introductionmentioning

confidence: 72%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Do CEO social connections promote corporate malpractices? Evidence from classification shifting

Malikov

Gaia

2021

Accounting Forum

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“…For instance, O'Keefe, King, and Gaver (1994) document that violations of Generally Accepted Auditing Standards (GAAS) decrease as audit fee increases, and that industry specialization is associated with fewer violations of GAAS. Bhandari, Mammadov, Shelton, and Thevenot (2018) also provide evidence that firms recruiting CEOs with larger numbers of employment connections demand higher audit quality, which translates into higher audit fees. Accordingly, we predict that, among outsider CEOs, when the new CEO previously worked for a partner (i.e., supplier, customer, or competitor firm) within the supply chain, the firm will be more willing to invest in a high-quality audit and make sure that a higher reputation audit firm provides the service.…”

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confidence: 85%

CEO Succession, Audit Pricing, and Firm Value: The Role of Supply Chain Knowledge.

Chao¹

2020

Preprint

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This paper examines whether new CEOs with supply chain knowledge influence audit pricing and firm value. Through repeated personal and professional contacts in the business community, CEOs establish networking across individuals and organizations, which enhances the acquisition of supply chain knowledge. Relative to those without supply chain knowledge, firms with new outsider CEOs who previously served for a partner (i.e., supplier, customer, or competitor firm) within the supply chain or those with new insider CEOs demand more audit efforts, which leads to higher audit fees. We also find that agency costs (incurred by shareholders due to the separation of ownership and control) lead to an increase in audit fees to compensate for the additional audit effort, and that new CEOs appointed from a company within the supply chain (i.e., external recruitment or internal promotion) partially mediate the positive relationship between agency costs and audit fees. The combined evidence is consistent with agency theory's argument that management will demand a high-quality audit when agency problems are high. We further document that appointing a new CEO who previously worked for a partner within the supply chain or promoting a new CEO from inside an organization adds greater value to firms than their counterparts outside the supply chain, suggesting that new CEOs with supply chain knowledge are valued at a premium. These results are robust to alternative samples and analyses.

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“…Several subsequent studies have examined the role of CEO and restatements such as (Efendi et al, 2007;Persons, 2005: Tendeloo & Vanstraelen, 2005Abbott, Parker andPresley, 2012: Huang, Rose-Green andLee, 2012;Bhandari, Mammadov, Shelton, & Thevenot, 2018). However, the results are mixed and extant evidence linking the CEO characteristics and financial restatements is not conclusive.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Chief Executive Officer Characteristics and Financial Restatements in Malaysia

Altarawneh¹,

Shafie²,

Ishak³

2020

IJFR

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The purpose of this paper is to investigate whether the Chief Executive Officer (CEO) characteristics affect the occurrence of financial restatements in Malaysian firms. The CEO characteristics used in this study were tenure, honorific title, gender, expertise, and age. In addition, the financial restatement has been measured as a dummy variable as to whether companies restate their financial statements or not. The sample of this study comprised 442 companies listed in the main market of Bursa Malaysia during the period 2012–2016. The panel data method was utilised to analyse the data. This study employed a logistic regression analysis. The results of this study revealed that there is a positive and significant relationship between CEO tenure and CEO gender with financial restatements. In addition, this study found a negative and significant relationship between CEO honorific title and financial restatements. However, the results found insignificant relationships between CEO expertise and age with financial restatements. This study highlighted the importance of considering CEO characteristics as one of the influential determinants of financial restatements in Malaysian companies.

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It Is Not Only What You Know, It Is Also Who You Know: CEO Network Connections and Financial Reporting Quality

Cited by 36 publications

References 69 publications

Do CEO social connections promote corporate malpractices? Evidence from classification shifting

Do CEO social connections promote corporate malpractices? Evidence from classification shifting

CEO Succession, Audit Pricing, and Firm Value: The Role of Supply Chain Knowledge.

Chief Executive Officer Characteristics and Financial Restatements in Malaysia

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