When Executives Pledge Integrity: The Effect of the Accountant's Oath on Firms' Financial Reporting

• 成果类型: Article
• 署名作者: Heese, Jonas; Perez-Cavazos, Gerardo; Peter, Caspar David
• 署名单位: Harvard University; University of California System; University of California San Diego; Erasmus University Rotterdam; Erasmus University Rotterdam - Excl Erasmus MC
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2021-0600
• 发表日期: 2023
• 页码: 261-288
• 关键词: earnings management; real activities; neural basis; trade-off; overconfidence; incentives; CHILDREN; accruals; ETHICS; truth

摘要

We study the effect of executives' pledges of integrity on firms' financial reporting outcomes by exploiting a 2016 regulation that requires holders of Dutch professional accounting degrees to pledge an integrity oath. We identify chief executive officers (CEOs) and chief financial officers (CFOs) required to take the integrity oath and find that firms reduce income-increasing discretionary accruals after executives took the oath. These firms also reduce discretionary expenditures, indicating that oath-taking executives reduce overall earnings management and do not merely substitute accruals-based with real-activities earnings management. These effects are concentrated in firms where the CFO took the oath. Overall, our results indicate that integrity oaths for executives improve firms' financial reporting quality.