CEO Regulatory Focus and Earnings Management
Date Issued
2015
Date
2015
Author(s)
Chen, Chia-Ying
Abstract
Previous research has extensive findings about the impacts of psychological attributes of managers on operating decisions. Since the scandal of Enron, the Sarbanes-Oxley Act (SOX) is promulgated in the hope that companies can provide fair presented financial statements under an environment with stricter overseeing and more information disclosure. It is expected that earnings management behavior can decline due to the legislation constraints. The purpose of this thesis is to investigate whether CEO regulatory focus can affect earnings management after the adoption of SOX. In accordance with the regulatory focus theory, individuals with promotion focus are more concerned with accomplishments and are more inclined to ensure holding opportunity to attain the positive outcomes. In contrast, individuals with prevention focus are more concerned with responsibility, and are more inclined to ensure correct rejections to avoid the negative outcomes. Using the tendency of beating the analysts’ forecasts and discretionary accrual model to measure earnings management, I find that the adoption of SOX can reduce earnings management. However, the results are more pronounced for CEOs with prevention focus than CEOs with promotion focus. The results imply that CEOs with prevention focus, who emphasizing more on their responsibility and due diligence, engage in less earnings management. In contrast, CEOs with promotion focus, who emphasize more on their own profits, are not fully constrained by SOX to reduce earnings management.
Subjects
Regulatory focus theory
Earnings management
Promotion focus
Prevention focus
Managerial attributes
Type
thesis
File(s)![Thumbnail Image]()
Loading...
Name
ntu-104-R02722026-1.pdf
Size
23.32 KB
Format
Adobe PDF
Checksum
(MD5):a297301de31c3019534a8b9094a1d902