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Abstract
This study investigates the impact of CEO demographics on earnings quality for private SMEs. Using a 2012 sample of 30,476 French firms, we first find strong empirical support for a gender effect: female‐run firms engage in less earnings management than do male‐run firms. This result is consistent with female CEOs being more risk averse than their male counterparts are when making financial decisions. Second, CEO age is negatively correlated with the magnitude of discretionary accruals, and the relationship between gender and earnings quality is stronger for older CEOs. Overall, our findings suggest that CEO demographics affect the quality of accounting information.
1. We are particularly grateful to Onur Bayar, Abhijit Barua, Thomas Jansson, and Emilia Vähämaa for insightful comments and helpful discussions. This research was conducted as part of the project Labex MME‐DII (ANR11‐LBX‐0023‐01). The financial support of the Fondation—Université de Cergy‐Pontoise is gratefully acknowledged.
1. We are particularly grateful to Onur Bayar, Abhijit Barua, Thomas Jansson, and Emilia Vähämaa for insightful comments and helpful discussions. This research was conducted as part of the project Labex MME‐DII (ANR11‐LBX‐0023‐01). The financial support of the Fondation—Université de Cergy‐Pontoise is gratefully acknowledged.
Notes
1. We are particularly grateful to Onur Bayar, Abhijit Barua, Thomas Jansson, and Emilia Vähämaa for insightful comments and helpful discussions. This research was conducted as part of the project Labex MME‐DII (ANR11‐LBX‐0023‐01). The financial support of the Fondation—Université de Cergy‐Pontoise is gratefully acknowledged.
1 For observable characteristics, see Serfling (Citation2014), Faccio, Marchica, and Mura (Citation2016), and Yim (Citation2013). For behavioral considerations, see Malmendier and Tate (Citation2005) and Aktas et al. (Citation2016).
2 We consider reported earnings to be of high quality when “[they] provide more information about the features of a firm's financial performance that are relevant to a specific decision made by a specific decision maker” (Dechow, Ge, and Schrand Citation2010, p. 344).
3 According to Healy and Wahlen (Citation1999, p. 368), “Earnings management occurs when managers use judgment in financial reporting and in structuring transactions to alter financial reports to either mislead some stakeholders about the underlying performance of the company or to influence contractual outcomes that depend on reported accounting numbers.”
4 According to INSEE (the French national statistical office), only 4.4 percent of listed firms are run by women.
5 The “reversal effect” refers to firms attempting to mislead stakeholders by upwardly managing earnings. Such action has been shown to reverse in the future and lead to a decrease in economic performance (Lara, Osma, and Neophytou Citation2009; Rangan Citation1998).
6 According to Hope, Thomas, and Vyas (Citation2013), financial and accounting data for private firms are more difficult to obtain in the United States because of the lack of reliable databases. Consequently, there is only limited evidence concerning the accounting practices of private firms in the United States.
7 The French Tax Code distinguishes “very small firms.” This category is used to refer to all firms with fewer than 20 employees.
8 The gender of the CEO is missing for 10.3 percent of the sample firms. In such cases, we look for the gender of the second (third, fourth, etc.) executive of the company cases, as ALTARES also provides information about other members of the management team. We estimate our empirical models by excluding firms with missing CEO gender data. This does not affect the pattern of results (tables are available upon request).
9 We require that the absolute difference between the propensity scores of the treated and control firms is not greater than 0.000005. The use of such a stringent criterion implies that some firms with a female CEO cannot be matched with firms run by male CEOs, but it ensures that the two samples are as similar as possible. Unreported tests show that there are no statistically significant differences in accounting and financial characteristics between the treated and control samples.
10 We are grateful to Abhijit Barua for providing us with these figures.
11 In the first stage, we estimate a Probit model predicting whether the firm is run by a woman. In the second step, we re‐estimate our regressions with the inverse Mills ratio (that is generated from the first‐stage regression) as an additional explanatory variable. A detailed description of this empirical approach is available upon request.
12 For example, Bernile, Bhagwat, and Rau (Citation2017) use a sample of S&P 1500 firms over the 1992–2012 period. There are 6,804 CEOs in their initial database, but relevant and reliable information is available only for 31 percent of the sample.
Additional information
Notes on contributors
François Belot
François Belot is an assistant professor of Finance at Université de Cergy‐Pontoise and researcher at THEMA.
Stéphanie Serve
Stéphanie Serve is a professor of Finance at Université Paris‐Est Créteil (UPEC) and researcher at IRG.
