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The Impact of Superstar CEOs on Financial Reporting Practices and Firm Performance
Kevin Koh,
University of Washington
ABSTRACT. The objective of this study is to examine the impact of managerial reputation on firms’ financial reporting practices and operating performance. Using the event of CEOs winning high-profile awards to proxy for managerial reputation, I compare within-firm changes in timely loss recognition, earnings management, and operating performance before and after superstar CEOs win awards. First, superstar CEOs improve financial reporting quality by reporting economic losses in an even more timely fashion than prior to winning awards. Second, superstar CEOs are less likely to engage in opportunistic earnings management to meet short-term earnings benchmarks. Finally, operating performance such as stock returns, return-on-assets, and operating cash flows, improve after superstar CEOs win awards. In contrast, no similar trends are observed for a control sample of non-superstar CEOs whose firms share similar characteristics to those managed by superstar CEOs prior to winning awards.
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