CEO Facial masculinity and accounting conservatism

Abstract

In this study, we examine the consequences of CEO facial masculinity for accounting conservatism. Facial masculinity is associated with an array of masculine behaviours including aggression, ambition, egocentricity, risk taking, and an increased desire to maintain social status. We predict that such behaviours lead to aggressive financial reporting practices that incorporate bad news into earnings in a less timely manner (i.e. lower conditional conservatism). Using a sample of S&P 1500 firms from 1993 to 2015, we find that CEOs’ facial masculinity is associated with less conservative accounting. This finding is robust to the use of several measures of conservatism. Further, we document that stronger external monitoring dampens the negative relationship between CEO facial masculinity and conservatism. Our findings complement recent work that reveals CEO facial masculinity is positively associated with fraud and AAERs, and contributes to the literature by documenting the effect of an ‘off the job’ CEO characteristic on accounting conservatism.