Using Shareholder Letters to Measure CEO Integrity
Year: 2016
Type: preprint
Abstract: We forward and validate a linguistically-derived measure of CEO integrity. We contend low-integrity CEOs lack credibility when communicating, which creates a demand for explanations beyond that created by firm-specific or other CEO characteristics. We capture the supply of such explanations by low-integrity CEOs via relatively excessive explanations in the annual shareholder letter. Using shareholder letter causation words to measure variation in explanations, we find low-integrity CEOs receive lower integrity ratings from subordinates, are perceived unfavorably by employees generally, are more likely to receive a tone-at-the-top material weakness and a higher fee from their auditor, provide lower quality accruals prior to Sarbanes-Oxley, are more likely to receive backdated options, and have inferior future firm performance.
Source: SSRN Electronic Journal
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3121301499