This study aims to investigate the direct and indirect relationship between CEO’s characteristics (age, gender, education and experience) and classification shifting using sustainability performance as a mediator.
This study used a panel data set of 285 UK firms listed between 2015 and 2022. The data were collected from the Thomson Reuters Asset 4 database and analyzed using the structural equation model, specifically the partial least squares, to test the hypotheses.
The regression results demonstrate a positive relationship between unexpected core earnings and non-recurring items, confirming that UK companies engage in classification shifting. The results show that sustainability performance only indirectly mediates the relationship between CEO age, CEO gender, CEO education, CEO experience and classification shifting in UK firms.
The findings are valuable to stakeholders and investors who would pressure companies to enhance the transparency of their accounting practices and reduce the likelihood of engaging in classification shifting practices by focusing on sustainable practices and improving their sustainability performance. Moreover, companies gain advantages by selecting CEOs with diverse backgrounds and experiences, as they can bring broader perspectives to sustainability initiatives and financial decision-making processes.
This paper is motivated by the limited research on sustainability, CEO demographic attributes and classification shifting, hence its pertinence for companies seeking to improve information quality. The authors extend the existing literature by examining the direct and indirect effect of CEO’s demographic attributes on earnings management using classification shifting in UK companies through sustainability performance as a mediating variable.
