Research Repository

Do CEO social connections promote corporate malpractices? Evidence from classification shifting

Malikov, Kamran and Gaia, Silvia (2021) 'Do CEO social connections promote corporate malpractices? Evidence from classification shifting.' Accounting Forum. pp. 1-25. ISSN 0155-9982

[img]
Preview
Text
Do CEO social connections promote corporate malpractices Evidence from classification shifting.pdf - Published Version
Available under License Creative Commons Attribution Non-commercial No Derivatives.

Download (2MB) | Preview

Abstract

This paper examines the effect of CEOs’ external social connections with other executives and directors on classification shifting, a widespread malpractice that inflates core earnings by altering the presentation of income statement line items without affecting bottom-line income. Using a sample of 995 UK listed firms in the period 2005 to 2016 and relying on the assumptions of social capital theory and the rent-extraction perspective, we find that CEOs with a larger number of external connections are more likely to engage in classification shifting. Further results indicate that this phenomenon occurs particularly when well-connected CEOs are local and/or are in the early years of their service. Collectively, the results suggest that social connections promote corporate malpractices that are unlikely to cause reputational losses. Overall, we contribute to the literature by providing evidence that the social capital of the CEO is an important driver of classification shifting.

Item Type: Article
Uncontrolled Keywords: Classification shifting; CEO social connections; CEO locality; earnings management
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Accounting Centre
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 13 Oct 2021 19:30
Last Modified: 06 Jan 2022 14:27
URI: http://repository.essex.ac.uk/id/eprint/31109

Actions (login required)

View Item View Item