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that this bias will be less of a problem for them. First, they can use these reports and recommendations as a reminder of their own opinion during the period before the restatement. Second, because the reports and recommendations are public, the respondents might expect that we would check the degree to which some of their answers in the questionnaire correspond to the opinions that they published in the past. Some evidence that hindsight bias might not be a serious problem for our study lays in the fact that there is a significant positive correlation (r = 0.41, p = 0.04) between the degree to which analysts reported in the questionnaire that, before the restatement, they felt misled by the CEO on financial statement issues (an item which is part of the General Reputation Management Behaviour construct), and their actual ratings of the company before the restatement. That is, on average, the more the analysts said they thought they were misled, the less positive their actual ratings were. This suggests that those analysts who reported that they had some suspicion before the restatement actually did have some suspicion at that time. In addition, there are quite substantial positive correlations between the analysts’ answers to the questions about how they perceived the degree of distortion and malicious intent involved at the time of the restatement announcement, and the actual ratings the analysts issued at the day of the announcement (r = 0.346, p = 0.098 for distortion; and r = 0.305, p = 0.148 for malicious intent). These correlations are only borderline significant, but this is probably due to the small sample size for this analysis (n = 24). In addition, there are quite substantial positive correlations between the perceptions of distortion and intent at the time of the restatement announcement and the actual drop in the company’s share price on the day following the restatement announcement (r = 0.238, p = 0.041 for distortion; and r = 0.351, p = 0.002 for malicious intent, on a sample of n=74). Assuming that in most restatement cases, the actual degrees of distortion and malicious intent are not known yet on the announcement date (and therefore would not yet be reflected in the company’s stock price and the analyst ratings), these correlations suggest that the analysts’ answers regarding their perceptions of distortion and intent at the time of the announcement are not coloured by the information that they later received regarding the degree of distortion and intent. Chapter 3 – Study 2: Analysts’ Perceptions of CEO Behaviour in Restatement Situations 173
174 A six-point Likert-type scale was used for all questions. We used a scale with an even number of response categories to force respondents to express their true opinion. We also included a ‘don’t know’ category in each scale. Both of these practices can reduce the risk that respondents choose the midpoint of the scale when they have no clear idea about some of the aspects they are questioned about (Graeff, 2002). All measures are displayed in Table 3.1, ordered by the construct that they are intended to measure as well as by the time frames that they refer to (i.e. Format I, II, or III). The measures refer to perceptions of specific characteristics and behaviours of the CEO, rather than overall, abstract perceptions such as trustworthiness or attitude. While such overall measures are commonly used in measures of reputation (see Chapter 1.4), perceptions by audiences with higher levels of involvement and expertise generally are more detailed and complex (Van Riel & Fombrun, 2007). Because analysts can be expected to have a relatively high degree of involvement with, and expertise in, the companies that they are following, we measured perceptions of specific attributes.
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FRED H.M. GERTSEN Riding a Tiger wi
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Riding a Tiger without Being Eaten
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Acknowledgments Boundary spanning c
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neighbours with Thomson Financial (
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12 Table of Contents Acknowledgment
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14 3.2.2 Nature of Analysts’ Expe
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16 List of Figures Figure 1.1 Numbe
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18 List of Tables Table 1.1 Inciden
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Introduction and theoretical backgr
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24 Chapter 1 1.1 Introduction and H
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26 look after the interests of stak
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28 and pride. Mandeville writes:
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30 associated with their views on r
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32 period adjustment by restating t
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34 by 71 per cent on average (as me
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36 Next to these reports, which wer
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38 the new millennium, considered p
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40 cent in 2005. Also in the same p
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42 1997-2006’ (Scholz, 2008); com
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44 Lieberman put it in an October 2
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46 major accountability breakdowns
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48 1.3 Review of Academic Studies i
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50 measured in basis points over Li
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52 of poor governance have been add
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54 accurate corporate financial sta
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56 1.3.6 restatements and contagion
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58 after having been dismissed, the
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60 Wall Street Journal was the whis
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62 CEO job demands, and factors rel
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64 illustrations and Figures Figure
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66 table 1.1 iNcideNce oF restateme
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68 (Wiesenfeld, Wurthmann, & Hambri
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70 personality traits that people a
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72 Figure 1.5 reputatioN aNalyses b
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74 surface. A celebrity CEO receive
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76 Financial statements also serve
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78 For our purposes, important driv
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80 Figure 1.6 study overview backgr
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82 Therefore, our first research qu
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84 of senior management, independen
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86 American Institute of Certified
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88 and explain the context of the C
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90 Chapter 2 Study 1: Restatement C
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92 • Effects on market capitaliza
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94 2.2 Theoretical Framework: Class
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96 Figure 2.1 perceived iNteNt aNd
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98 2.3 Methods We developed our cla
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100 memos in various levels. This s
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102 at the beginning of the crisis.
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104 Figure 2.3 issues iNFlueNciNg p
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106 leads to a questioning of the c
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108 communication most likely leads
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110 able to withstand such mounting
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112 to errors made in the past on s
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114 What is remarkable is the relat
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116 Anderson, Mansi & Reeb, 2004).
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118 was executive responsibility fo
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120 Compliance with standards and c
Page 123 and 124: 122 and standalone companies…, 12
Page 125 and 126: 124 to provide an estimate of the e
Page 127 and 128: 126 Although Freddie Mac’s restat
Page 129 and 130: 128 is too high for most executives
Page 131 and 132: 130 2.6 Conclusions and Discussion
Page 133 and 134: 132 Chapter 3 Study 2: Analysts’
Page 135 and 136: 134 Compustat database. However, st
Page 137 and 138: 136 3.2 Theoretical Framework and P
Page 139 and 140: 138 employers and anyone who uses a
Page 141 and 142: 140 marketplace. Contrary to other
Page 143 and 144: 142 Stracca (2004: 383) notes: A si
Page 145 and 146: 144 In determining financial report
Page 147 and 148: 146 other, the degree to which anal
Page 149 and 150: 148 Conversely, regarding the secon
Page 151 and 152: 150 incentives from option compensa
Page 153 and 154: 152 d. There is excessive pressure
Page 155 and 156: 154 3.3.4 HyPotHeses ceo dominance
Page 157 and 158: 156 Hambrick (2007) notes that this
Page 159 and 160: 158 H7a: The more competent the ana
Page 161 and 162: 160 high degree of pressure on the
Page 163 and 164: 162 reporting. Their research exten
Page 165 and 166: 164 3.4 Analysts’ Survey Design a
Page 167 and 168: 166 of significant restatement comp
Page 169 and 170: 168 Therefore, it was to be expecte
Page 171 and 172: 170 covering a part of the model as
Page 173: 172 (which we label Period B). Howe
Page 177 and 178: 176 continuAtion tABle 3.1 reliABil
Page 183 and 184: 182 were posed for the restatement
Page 185 and 186: 184 resolution period. Therefore, w
Page 187 and 188: 186 to which the CEO provided adequ
Page 189 and 190: 188 Earnings Management Pressures T
Page 191 and 192: 190 announcement. Nevertheless, we
Page 193 and 194: 192 table 3.5 Factor loadiNgs bouNd
Page 195 and 196: 194 items loaded on the factors rep
Page 197 and 198: 196 3.5 Analysis of Survey Results
Page 199 and 200: 198 In Table 3.9, it can be seen th
Page 201 and 202: 200 table 3.10 comparisoN oF meaNs
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Page 205 and 206: 204 blame taking behaviour, or blam
Page 207 and 208: 206 the CEO do not have a significa
Page 209 and 210: 208 Influence of restatement severi
Page 211 and 212: 210 table 3.17 meaNs oF coNstructs
Page 213 and 214: 212 table 3.18 overview oF hypothes
Page 215 and 216: 214 Regarding the other factors tha
Page 217 and 218: 216 measurement by the same instrum
Page 219 and 220: 218 Chapter 4 Study 3: Interviews w
Page 221 and 222: 220 functioning of a CEO. We will c
Page 223 and 224: 222 We split the factors for this i
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224 and Kubik (2003) find that job
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226 4.3 Methods The 23 in-depth int
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228 4.3.2 Procedures and interview
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230 You were involved with the (Com
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232 4.4 Data Analysis and Empirical
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234 4.4.3 interview results and tab
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236 CEO Qualities (Q5 How did the f
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238 Surprised about restatement (Q
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240 Red flags (Q 13 In hindsight, w
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242 4.6 Conclusions and Discussion
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244 Chapter 5 Overall Conclusions a
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246 avoid reputation damage, both a
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248 This chapter will continue as f
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250 5.2 Key Findings from Our Studi
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252 and gatekeepers (including anal
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254 of Investigations, 2002) and Po
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256 prior awareness of all of the i
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258 Legislators and regulators have
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260 while negative events are attri
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262 1. Encourage companies to provi
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264 Figure 5.2 aNalysts oNly: Norma
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266 5.4 Discussion Themes 5.4.1 wHa
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268 profession management aspects,
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270 with standards or procedures. A
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272 Corporate dishonesty has also b
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274 information they receive from e
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276 and contractual parameters of t
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278 from overconfidence (Daniel et
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280 5.6 Managerial Implications We
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282 • Convening bilateral and/or
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284 5.7 Limitations of This Study F
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286 This brings us to the next limi
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288 crisis they have suggested how
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290 AICPA auditing standards board
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292 References Abarbanell, J., & Le
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294 Berens, G., van Riel, C., & van
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296 Coffee Jr., J. 2001. The Acquie
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298 Efendi, J., Srivastava, A., & S
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300 Glaser, B., & Strauss, A. 1967.
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302 Huron Consulting Group. 2005. 2
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304 Loebbecke, J., & Willingham Jr.
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306 Prentice, R. 2007a. Ethical Dec
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308 Sun, P., & Zhang, Y. 2006. Is T
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310 Appendices Appendix 1.1 Materia
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312 Appendix 1.2 The Subprime Mortg
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314 Appendix 2.1 Timelines Freddie
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316 Appendix 2.2 Coding Scheme OPEN
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318 codiNg scores by positive aNd N
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320 Appendix 3.1 Analysts Survey Ap
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322 Appendix 3.1 Analysts Survey
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350 Appendix 3.2 Analysts’ Survey
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352 Construct Item number Item name
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Samenvatting ‘Financial Statement
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gebaseerd op historische dataverzam
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Earnings Management Pressures & Job
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Op basis van literatuur studie over
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Erasmus Research Institute of Manag
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Damen, F.J.A., Taking the Lead: The
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Heuvel, W. van den, The Economic Lo
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Le-Duc, T., Design and Control of E
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Noeverman, J., Management Control S
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Six, F.E., Trust and Trouble: Build
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Watkins Fassler, K., Macroeconomic
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