Do powerful CEOs matter for earnings quality? Evidence from Bangladesh

This study investigates the effects of powerful Chief Executive Officers (CEOs) on earnings quality in a setting where CEOs have strong dominance over other top executives and occasionally attempt to exert their influence over corporate regulatory bodies. Using 10-year longitudinal data for the peri...

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Bibliographic Details
Published in:PloS one 2023-01, Vol.18 (1), p.e0276935-e0276935
Main Authors: Arif, H M, Mustapha, Mohd Zulkhairi, Abdul Jalil, Azlina
Format: Article
Language:English
Subjects:
Analysis
Bangladesh
Chief executive officers
Economic aspects
Emerging markets
Generalized method of moments
Income inequality
Organizations
People and Places
Political power
Politics
Profit
Profits
Science Policy
Social Sciences
Stockholders
Vaccines
Wealth
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Summary:This study investigates the effects of powerful Chief Executive Officers (CEOs) on earnings quality in a setting where CEOs have strong dominance over other top executives and occasionally attempt to exert their influence over corporate regulatory bodies. Using 10-year longitudinal data for the period from 2010 to 2019 and 1,395 firm-year observations from listed non-financial firms in Bangladesh, we found that CEOs' political power and CEOs with high structural and expert power have a significant detrimental effect on earnings quality. Ownership and prestige power have an insignificant impact on earnings quality. These powerful CEOs use accrual and real activity manipulation techniques together to manage the earnings. This study uses the system-generalized method of moment estimates for estimation purposes, and the results remain robust when alternative earnings quality proxies are used. Taken together, our results suggest that CEOs' political duality (i.e., serving simultaneously as a member of parliament and a CEO) should be restricted and that a CEO's tenure should be limited to a reasonable period. This research adds to the existing body of knowledge by offering empirical support for CEO power dynamics on earnings quality, specifically political and prestige power.
ISSN:1932-6203
1932-6203
DOI:10.1371/journal.pone.0276935