The impact of CEO Characteristics and Audit Market Competition on Disclosure Quality and Financial Comparability
Subject Areas : • Emerging technology in the field of Accounting and its future
1 - Department of Economics and Administrative Sciences, Ferdowsi University of Mashhad, Mashhad, Iran
Keywords: CEO’s characteristics, CEO's tenure, CEO’s financial expertise, information disclosure quality, timeliness of information, reliability of information, information comparability,
Abstract :
Objective: Nowadays, considering the competitive environment and changing business conditions, the most important issue for companies is their credibility and level of acceptance. One of the important tools to show this is the ranking of companies. In fact, the company's ranking can be a sign of its creditworthiness. Regarding this, most countries have ranked companies listed on their stock exchanges. The study examines whether the CEO’s characteristics are associated with financial information's disclosure quality and comparability.
References:
Balakrishnan, K. Core, J.E. and Verdi, R.S. (2014), "The Relation between Reporting Quality and Financing and Investment: Evidence from Changes in Financing Capacity", Journal of Accounting Research, Vol. 52 No. 1, pp. 1-36. doi:doi:10.1111/1475-679X.12031
Batwah, S.R. Salleh, Z. and Ahmad, N. (2015), "CEO characteristics and audit report timeliness: do CEO tenure and financial expertise matter?", Managerial Auditing Journal, Vol. 30 Nos. 8/9, pp. 998-1022. doi: doi:10.1108/MAJ-09-2014-1097
Burks, J.J. Cuny, C. Gerakos, J. and Granja, J. (2018), "Competition and voluntary disclosure: Evidence from deregulation in the banking industry", Review of Accounting Studies, Vol. 23 No. 4, pp. 1471-1511.
Cheng, P. Man, P. and Yi, C.H. (2013), "The impact of product market competition on earnings quality", Accounting & Finance, Vol. 53 No. 1, pp. 137-162. doi:doi:10.1111/j.1467-629X.2011.00457.x
Choi, J.H. Choi, S. Myers, L. and Ziebart, D. (2019), "Financial statement comparability and the ability of current stock returns to reflect the information in future earnings", Contemporary Accounting Research, Vol. 36 No. 1, pp. 389-417.
De Franco, G. Kothari, S.P. and Verdi, R.S. (2011), "The Benefits of Financial Statement Comparability", Journal of Accounting Research, Vol. 49 No. 4, pp. 895-931. doi:doi:10.1111/j.1475-679X.2011.00415.x
Demerjian, P. Lev, B. and McVay, S. (2012), "Quantifying Managerial Ability: A New Measure and Validity Tests", Management Science, Vol. 58 No. 7, pp. 1229-1248. doi:10.1287/mnsc.1110.1487
Dhaliwal, D.S. Huang, S. Khurana, I. and Pereira, R. (2008), "Product market competition and accounting conservatism", working paper
Engelberg, J. Ozoguz, A. and Wang, S. (2018), "Know thy neighbor: Industry clusters, information spillovers, and market efficiency", Journal of Financial and Quantitative Analysis, Vol. 53 No. 5, pp. 1937-1961.
Ettredge, M. Li, C. Wang, Q. and Xu, Y. (2018), "Executive Director Financial Expertise and IPO Performance", Working Paper, University of Kansas.
Francis, J. Huang, A.H. Rajgopal, S. and Zang, A.Y. (2008), "CEO Reputation and Earnings Quality", Contemporary Accounting Research, Vol. 25 No. 1, pp. 109-147. doi:doi:10.1506/car.25.1.4
Golden, J. Bhandari, A. and Thevenot, M. (2018), "CEO Political Ideology and Financial Reporting Quality", available at https://www.lsu.edu/.../CEO_political_ideology_and_financial_reporting_quality_1_24
Habib, A. and Hossain, M. (2013), "CEO/CFO characteristics and financial reporting quality: A review", Research in Accounting Regulation, Vol. 25 No. 1, pp. 88-100. doi:https://doi.org/10.1016/j.racreg.2012.11.002
Hashim, U. and Abdul Rahman, R. (2011), "Reviewing the literature on audit report lag and corporate governance", available at https://www.ssrn.com/abstract=2207811
Hazarika, S. Karpoff, J.M. and Nahata, R. (2012), "Internal corporate governance, CEO turnover, and earnings management", Journal of Financial Economics, Vol. 104 No. 1, pp. 44-69. doi:https://doi.org/10.1016/j.jfineco. 2011.10.011
Healy, P.M. and Palepu, K.G. (2001), "Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature", Journal of Accounting and Economics, Vol. 31 No. 1, pp. 405-440. doi:https://doi.org/10.1016/S0165-4101(01)00018-0
Iatridis, G.E. (2011), "Accounting disclosures, accounting quality and conditional and unconditional conservatism", International Review of Financial Analysis, Vol. 20 No. 2, pp. 88-102. doi:https://doi.org/10.1016/j.irfa. 2011.02.013
Jiang, F. Zhu, B. and Huang, J. (2013), "CEO’s financial experience and earnings management", Journal of Multinational Financial Management, Vol. 23 No. 3, pp. 134-145.
Jiang, J. Petroni, K.R. and Yanyan Wang, I. (2010), "CFOs and CEOs: Who have the most influence on earnings management?" Journal of Financial Economics, Vol. 96 No. 3, pp. 513-526. doi:https://doi.org/10.1016/j.jfineco.2010.02.007
Kia, A. and Safari Gerayeli, M. (2017), "Comparability of financial statements, accrual management and real income management," Financial accounting knowledge, Vol. 4 No. 2, pp. 115-137 (In Persian).
Kim, T.Y. Garner, J. and Yong Kim, W. (2017), "Boards of directors: a literature review", Managerial Finance, Vol. 43 No. 10, pp. 1189-1198. doi:doi:10.1108/MF-07-2017-0267
Li, C. Tseng, Y. and Chen, T.K. (2016), "Top management team expertise and corporate real earnings management activities", Advances in Accounting, Vol. 34, pp. 117-132. doi:https://doi.org/10.1016/j.adiac.2016. 07.007
Mansourfar, Q. and Didar, H. (2017), "Investigating the Effect of Corporate Governance on the Disclosure Quality with Emphasis on the Moderating Role of Competition in the Product Market in Tehran Stock Exchange Companies", Financial Accounting Research, Vol. 9 No. 1, pp. 20-31 (In Persian).
Matsunaga, S.R. and Yeung, P.E. (2008), "Evidence on the impact of a CEO's financial experience on the quality of the firm's financial reports and disclosures" available at: https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=1014097
Mazzi, F. and Tsalavoutas, I. (2015), "Economic consequences of key performance indicators' disclosure quality", International Review of Financial Analysis, Vol. 39, pp. 96-112. doi:https://doi.org/10.1016/j.irfa. 2015.03.005
Owusu-Ansah, S. (2000), "Timeliness of corporate financial reporting in emerging capital markets: empirical evidence from the Zimbabwe Stock Exchange", Accounting and Business Research, Vol. 30 No. 3, pp. 241-254. doi:10.1080/00014788.2000.9728939
Prasad, A. and Green, P. (2015), "Organizational Competencies and Dynamic Accounting Information System Capability: Impact on AIS Processes and Firm Performance", Journal of Information Systems, Vol. 29 No. 3, pp. 123-149. doi:10.2308/isys-5112.
Salehi, M. Moradi, M. and Paidarmanesh, N. (2017), "The Effect of Corporate Governance and Audit Quality on Disclosure Quality: Evidence from Tehran Stock Exchange", Periodica Polytechnica, Social and Management Sciences, Vol. 25 No. 1, pp. 32-48.
Salleh, Z. and Stewart, J. (2012), "The impact of expertise on the mediating role of the audit committee", Managerial Auditing Journal, Vol. 27 No. 4, pp. 378-402. doi:doi:10.1108/02686901211217987
Salterio, S.E. (2012), "Fifteen years in the trenches: Auditor–client negotiations exposed and explored", Accounting & Finance, Vol. 52 No. s1, pp. 233-286. doi:doi:10.1111/j.1467-629X.2012.00499.
Sassi, S. and Toumi, N. (2018), "Product market competition and analyst following", Journal of Management & Governance, Vol. 22, No. 1, pp. 55-88.
Setayesh, M.H. Kazemnejad, M. and Sarvestani, A. (2012), "Investigating the Effect of Disclosure Quality on Current and Future Performance of Companies Listed on Tehran Stock Exchange" Accounting and Auditing Reviews, Vol. 19 No. 3, pp. 1-21( In Persian).
Smith, C.W. and Watts, R.L. (1992), "The investment opportunity set and corporate financing, dividend, and compensation policies", Journal of Financial Economics, Vol. 32 No. 3, pp. 263-292. doi:https://doi.org/10.1016/ 0304-405X(92)90029-W
Sohn, B.C. (2016), "The effect of accounting comparability on the accrual-based and real earnings management", Journal of Accounting and Public Policy, Vol. 35 No. 5, pp. 513-539. doi:https://doi.org/10.1016/j. jaccpubpol.2016.06.003
Teng, M., and Li, C. (2011), "Product market competition, board structure, and disclosure quality", Frontiers of Business Research in China, Vol. 5 No. 2, pp. 291-316.
Vafeas, N. (2009), "Is Accounting Education Valued by the Stock Market? Evidence from Corporate Controller Appointments", Contemporary Accounting Research, Vol. 26 No. 4, pp. 1143-1174. doi:doi:10.1506/ car.26.4.6
Zalata, A.M. Tauringana, V. and Tingbani, I. (2018), "Audit committee financial expertise, gender, and earnings management: Does gender of the financial expert matter?" International Review of Financial Analysis, Vol. 55, pp. 170-183.
Zhang, Y. Wiersema, M.F. (2009), "Stock market reaction to CEO certification: The signaling role of CEO background", Strategic
Balakrishnan, K. Core, J.E. and Verdi, R.S. (2014), "The Relation between Reporting Quality and Financing and Investment: Evidence from Changes in Financing Capacity", Journal of Accounting Research, Vol. 52 No. 1, pp. 1-36. doi:doi:10.1111/1475-679X.12031
Batwah, S.R. Salleh, Z. and Ahmad, N. (2015), "CEO characteristics and audit report timeliness: do CEO tenure and financial expertise matter?", Managerial Auditing Journal, Vol. 30 Nos. 8/9, pp. 998-1022. doi: doi:10.1108/MAJ-09-2014-1097
Burks, J.J. Cuny, C. Gerakos, J. and Granja, J. (2018), "Competition and voluntary disclosure: Evidence from deregulation in the banking industry", Review of Accounting Studies, Vol. 23 No. 4, pp. 1471-1511.
Cheng, P. Man, P. and Yi, C.H. (2013), "The impact of product market competition on earnings quality", Accounting & Finance, Vol. 53 No. 1, pp. 137-162. doi:doi:10.1111/j.1467-629X.2011.00457.x
Choi, J.H. Choi, S. Myers, L. and Ziebart, D. (2019), "Financial statement comparability and the ability of current stock returns to reflect the information in future earnings", Contemporary Accounting Research, Vol. 36 No. 1, pp. 389-417.
De Franco, G. Kothari, S.P. and Verdi, R.S. (2011), "The Benefits of Financial Statement Comparability", Journal of Accounting Research, Vol. 49 No. 4, pp. 895-931. doi:doi:10.1111/j.1475-679X.2011.00415.x
Demerjian, P. Lev, B. and McVay, S. (2012), "Quantifying Managerial Ability: A New Measure and Validity Tests", Management Science, Vol. 58 No. 7, pp. 1229-1248. doi:10.1287/mnsc.1110.1487
Dhaliwal, D.S. Huang, S. Khurana, I. and Pereira, R. (2008), "Product market competition and accounting conservatism", working paper
Engelberg, J. Ozoguz, A. and Wang, S. (2018), "Know thy neighbor: Industry clusters, information spillovers, and market efficiency", Journal of Financial and Quantitative Analysis, Vol. 53 No. 5, pp. 1937-1961.
Ettredge, M. Li, C. Wang, Q. and Xu, Y. (2018), "Executive Director Financial Expertise and IPO Performance", Working Paper, University of Kansas.
Francis, J. Huang, A.H. Rajgopal, S. and Zang, A.Y. (2008), "CEO Reputation and Earnings Quality", Contemporary Accounting Research, Vol. 25 No. 1, pp. 109-147. doi:doi:10.1506/car.25.1.4
Golden, J. Bhandari, A. and Thevenot, M. (2018), "CEO Political Ideology and Financial Reporting Quality", available at https://www.lsu.edu/.../CEO_political_ideology_and_financial_reporting_quality_1_24
Habib, A. and Hossain, M. (2013), "CEO/CFO characteristics and financial reporting quality: A review", Research in Accounting Regulation, Vol. 25 No. 1, pp. 88-100. doi:https://doi.org/10.1016/j.racreg.2012.11.002
Hashim, U. and Abdul Rahman, R. (2011), "Reviewing the literature on audit report lag and corporate governance", available at https://www.ssrn.com/abstract=2207811
Hazarika, S. Karpoff, J.M. and Nahata, R. (2012), "Internal corporate governance, CEO turnover, and earnings management", Journal of Financial Economics, Vol. 104 No. 1, pp. 44-69. doi:https://doi.org/10.1016/j.jfineco. 2011.10.011
Healy, P.M. and Palepu, K.G. (2001), "Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature", Journal of Accounting and Economics, Vol. 31 No. 1, pp. 405-440. doi:https://doi.org/10.1016/S0165-4101(01)00018-0
Iatridis, G.E. (2011), "Accounting disclosures, accounting quality and conditional and unconditional conservatism", International Review of Financial Analysis, Vol. 20 No. 2, pp. 88-102. doi:https://doi.org/10.1016/j.irfa. 2011.02.013
Jiang, F. Zhu, B. and Huang, J. (2013), "CEO’s financial experience and earnings management", Journal of Multinational Financial Management, Vol. 23 No. 3, pp. 134-145.
Jiang, J. Petroni, K.R. and Yanyan Wang, I. (2010), "CFOs and CEOs: Who have the most influence on earnings management?" Journal of Financial Economics, Vol. 96 No. 3, pp. 513-526. doi:https://doi.org/10.1016/j.jfineco.2010.02.007
Kia, A. and Safari Gerayeli, M. (2017), "Comparability of financial statements, accrual management and real income management," Financial accounting knowledge, Vol. 4 No. 2, pp. 115-137 (In Persian).
Kim, T.Y. Garner, J. and Yong Kim, W. (2017), "Boards of directors: a literature review", Managerial Finance, Vol. 43 No. 10, pp. 1189-1198. doi:doi:10.1108/MF-07-2017-0267
Li, C. Tseng, Y. and Chen, T.K. (2016), "Top management team expertise and corporate real earnings management activities", Advances in Accounting, Vol. 34, pp. 117-132. doi:https://doi.org/10.1016/j.adiac.2016. 07.007
Mansourfar, Q. and Didar, H. (2017), "Investigating the Effect of Corporate Governance on the Disclosure Quality with Emphasis on the Moderating Role of Competition in the Product Market in Tehran Stock Exchange Companies", Financial Accounting Research, Vol. 9 No. 1, pp. 20-31 (In Persian).
Matsunaga, S.R. and Yeung, P.E. (2008), "Evidence on the impact of a CEO's financial experience on the quality of the firm's financial reports and disclosures" available at: https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=1014097
Mazzi, F. and Tsalavoutas, I. (2015), "Economic consequences of key performance indicators' disclosure quality", International Review of Financial Analysis, Vol. 39, pp. 96-112. doi:https://doi.org/10.1016/j.irfa. 2015.03.005
Owusu-Ansah, S. (2000), "Timeliness of corporate financial reporting in emerging capital markets: empirical evidence from the Zimbabwe Stock Exchange", Accounting and Business Research, Vol. 30 No. 3, pp. 241-254. doi:10.1080/00014788.2000.9728939
Prasad, A. and Green, P. (2015), "Organizational Competencies and Dynamic Accounting Information System Capability: Impact on AIS Processes and Firm Performance", Journal of Information Systems, Vol. 29 No. 3, pp. 123-149. doi:10.2308/isys-5112.
Salehi, M. Moradi, M. and Paidarmanesh, N. (2017), "The Effect of Corporate Governance and Audit Quality on Disclosure Quality: Evidence from Tehran Stock Exchange", Periodica Polytechnica, Social and Management Sciences, Vol. 25 No. 1, pp. 32-48.
Salleh, Z. and Stewart, J. (2012), "The impact of expertise on the mediating role of the audit committee", Managerial Auditing Journal, Vol. 27 No. 4, pp. 378-402. doi:doi:10.1108/02686901211217987
Salterio, S.E. (2012), "Fifteen years in the trenches: Auditor–client negotiations exposed and explored", Accounting & Finance, Vol. 52 No. s1, pp. 233-286. doi:doi:10.1111/j.1467-629X.2012.00499.
Sassi, S. and Toumi, N. (2018), "Product market competition and analyst following", Journal of Management & Governance, Vol. 22, No. 1, pp. 55-88.
Setayesh, M.H. Kazemnejad, M. and Sarvestani, A. (2012), "Investigating the Effect of Disclosure Quality on Current and Future Performance of Companies Listed on Tehran Stock Exchange" Accounting and Auditing Reviews, Vol. 19 No. 3, pp. 1-21( In Persian).
Smith, C.W. and Watts, R.L. (1992), "The investment opportunity set and corporate financing, dividend, and compensation policies", Journal of Financial Economics, Vol. 32 No. 3, pp. 263-292. doi:https://doi.org/10.1016/ 0304-405X(92)90029-W
Sohn, B.C. (2016), "The effect of accounting comparability on the accrual-based and real earnings management", Journal of Accounting and Public Policy, Vol. 35 No. 5, pp. 513-539. doi:https://doi.org/10.1016/j. jaccpubpol.2016.06.003
Teng, M., and Li, C. (2011), "Product market competition, board structure, and disclosure quality", Frontiers of Business Research in China, Vol. 5 No. 2, pp. 291-316.
Vafeas, N. (2009), "Is Accounting Education Valued by the Stock Market? Evidence from Corporate Controller Appointments", Contemporary Accounting Research, Vol. 26 No. 4, pp. 1143-1174. doi:doi:10.1506/ car.26.4.6
Zalata, A.M. Tauringana, V. and Tingbani, I. (2018), "Audit committee financial expertise, gender, and earnings management: Does gender of the financial expert matter?" International Review of Financial Analysis, Vol. 55, pp. 170-183.
Zhang, Y. Wiersema, M.F. (2009), "Stock market reaction to CEO certification: The signaling role of CEO background", Strategic
