This paper investigates the influence of CEO power on financial statement comparability using a multidimensional CEO power index and a comprehensive measure of financial statement comparability for ASX-listed companies.
This study applies ordinary least squares regression analyses to a sample of 3,562 firm-year observations spanning 2004–2015. A propensity score matching procedure, lagged regression models, instrumental variable two-stage least squares regressions and first difference models were performed for endogeneity correction and robustness purposes.
The results suggest that powerful CEOs are more likely to produce more comparable financial reports. We also analyse four dimensions of CEO power and find that the influence of CEO power on FS comparability mainly stems from ownership and expert power dimensions. Additionally, we report that the influence of CEO power on FS comparability is more pronounced for firms that operate under high market competition and industry-related shocks, but governance characteristics do not make a material impact on the uncovered relationship.
Given the pressure exerted by regulatory bodies on companies to reduce information asymmetry, the study’s empirical evidence offers valuable insights to policymakers, corporations and other stakeholders as it provides evidence on the importance of corporate leadership in improving FS comparability.
The extent to which CEO power is linked with the comparability of corporate disclosures is new to the literature. Investigating such a link is important because corporate disclosure is primarily a management practice that emanates from the board and generally affects the firm, its shareholders and other market participants.
