The effect of CEO inside debt holdings on financial reporting quality

Review of Accounting Studies · 2015 · Volume 20 · Issue 1

Abstract

This study investigates the effect of CEO inside debt holdings on financial reporting quality. I find that higher CEO inside debt holdings are associated with lower abnormal accruals, higher accruals quality, a lower likelihood of an earnings misstatement, and a lower incidence of earnings benchmark beating, suggesting that CEO inside debt promotes high financial reporting quality. Additional analyses reveal that (1) CEO inside debt holdings reduce firm-specific stock price crash risk, and that (2) auditors are less likely to report a material internal control weakness for firms that have large CEO inside debt.

Keywords

CEO inside debt holdings, Abnormal accruals, Accruals quality, Earnings misstatement, Earnings target beating

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