CEO Political Ideology: Revisiting its Responsibility Implications

Abstract

As an integral component of their value system, CEOs’ political ideology—their stance along the liberal–conservative continuum—has come to be regarded a major determinant for (ir)responsible behavior. Yet, prior work remains inconclusive on whether a more liberal or a more conservative ideological leaning induces CEOs to engage in more or less (ir)responsible behavior. Applying an upper echelons perspective to assess the effect of CEO political ideology on a highly controversial corporate practice, earnings management, we argue that what distinguishes the (ir)responsibility of liberal versus conservative-leaning CEOs may at times rather be its configuration than its degree and depend on the context in which managerial action occurs. Analyzing a panel dataset of 872 S&P 1500 CEOs, we find considerable support for our arguments that liberal-leaning CEOs particularly prefer to inflate reported earnings in line with their preference for current achievement. Conservative-leaning CEOs likewise engage in earnings management, yet particularly tend to deflate reported earnings in line with their preference for inhibition to forestall potential future ambiguity. We show how this ideological inclination to manage earnings varies along contextual characteristics inducing variance in CEOs’ short-term versus long-term orientation and thus offer a comprehensive contribution to our understanding of the irresponsibility of liberal and conservative-leaning CEOs.