AAA Spark Meeting of the Regions

CEO Endowed Trait and Financial Reporting Conservatism: Evidence from Pilot CEOs

• In Event: DSFI/SE - Session 5 (Archival)

Abstract

Psychological and upper echelons theories suggest that CEO personality traits, such as sensation
seeking, shape corporate policies. In gauging sensation seeking with whether the CEO holds a
pilot license, we examine the importance of this CEO endowed trait to firms’ financial reporting
decision. We find that CEO sensation seeking is inversely associated with financial reporting
conservatism (i.e., timely recognition of bad news relative to good news in earnings). This result
holds in extensive sensitivity analyses, including controlling for alternative CEO overconfidence
measures and a series of additional CEO characteristics and confronting potential endogeneity
threats with several techniques. Finally, in a series of cross-sectional tests, we find no evidence
that the negative relation we document varies systematically with external monitoring and CEO
power, consistent with prior research implying that intrinsic motivation from CEO endowed
traits dominates potential constraints from extrinsic forces.

Authors

• Suzanne Mullinnix, AAMVA

• Xiaohua Fang, Florida Atlantic University

• Le Luo, Central University of Finance and Economics

• Jeffrey Pittman, Memorial University of Newfoundland

• Hong Xie, University of Kentucky