CEO Regulatory Focus, Decision Frames, and Earnings Management

Shinhye Gloria Ahn, Theresa Cho, Seok-hyun Hwang, Cecile K Cho

    Research output: Chapter in book/report/conference proceedingConference contributionpeer-review

    Abstract

    Strategy scholars have increasingly noted the influence of the psychological characteristics of executives on corporate strategy and performance. Synthesizing theories on regulatory focus and framing effect, in this study we examine the role of CEO regulatory focus (i.e., promotion and prevention focus) and decision frames (i.e., gain and loss frames) reflected in earnings management decisions. Specifically, we predict that under two conditions, promotion focus under a gain frame and prevention focus under a loss frame, a CEO’s subjective utilities and probabilities of the attainable gains in earnings management become heightened. This, in turn, ultimately leads to his/her intensified tendency to manipulate earnings. Conversely, a CEO’s promotion (prevention) focus under a loss (gain) frame decreases his/her perceived utilities and probabilities of the attainable gains in earnings management, subsequently leading to diminished tendency to manipulate earnings. Using a seven-year panel data of U.S. manufacturing firms between 2011 and 2017, we find general support for our hypotheses. The results indicate that the psychological characteristics of CEOs, along with their framing of performance, have a significant impact on their earnings management decisions. Overall, our study highlights the importance of understanding the psychological underpinnings of the earnings management behavior.
    Original languageEnglish
    Title of host publicationAcademy of Management Proceedings 2021
    EditorsSonia Taneja
    PublisherAcademy of Management
    DOIs
    Publication statusPublished - 1 Aug 2021
    Event81st Annual Meeting of the Academy of Management, AOM 2021: Bringing the Manager Back in Management -
    Duration: 30 Jul 20213 Aug 2021
    https://aom.org/events/annual-meeting/past-annual-meetings/2021-bringing-the-manager-back-in-management (Conference website)
    https://journals.aom.org/toc/amproc/2021/1 (Conference proceedings)

    Publication series

    NameAcademy of Management Proceedings
    PublisherAcademy of Management
    Number1
    Volume2021
    ISSN (Print)0065-0668
    ISSN (Electronic)2151-6561

    Conference

    Conference81st Annual Meeting of the Academy of Management, AOM 2021
    Period30/07/213/08/21
    Internet address

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