The burden of reputation: Star CEOs and conditional accounting conservatism

Abstract

AbstractThis study investigates whether CEO reputation affects firms' conditional accounting conservatism. We use prestigious CEO awards conferred by authoritative business media as an exogenous shock to increase CEOs' reputations. Based on a difference‐in‐differences empirical design, we find that firms with award‐winning CEOs exhibit significantly lower accounting conservatism after the events compared with firms with non‐award‐winning CEOs. We further show that this effect occurs through the channels of market pressure and CEOs' risk‐taking preferences. We also demonstrate that the baseline result is more significant when the CEO has higher discretion in shaping the firm's accounting policies, when external monitoring is weaker, and when internal control has greater deficiencies. Overall, our results suggest that CEO reputation meaningfully impacts corporate accounting policy.