Prof. Dr. Carmen Tanner and Dr. Matthias Sohn from LEIZ conducted a research project with their colleagues Prof. Dr. Rajna Gibson from the University of Geneva and Prof. Dr. Alexander F. Wagner from the University of Zurich. Their research project on private preferential investment behaviour is covered by many newspapers in Switzerland and Germany.
Two laboratory experiments, supported by the Swiss Finance Institute, show that investors perceive a CEO to be more committed to honesty when the CEO resisted, at a personal cost, engaging in earnings management. A one standard deviation higher CEO’s perceived commitment to honesty compared to another CEO reduces the relevance, for investment decisions, of differences between the CEOs’ claimed future returns by 40%. This interaction effect is prominent among investors with a pro -self orientation. To pro -social investors, their own honesty values and those attributed to the CEO matter directly, not through the returns. Overall, CEO honesty matters to different investors for distinct reasons.
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