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3.6 Conclusions and Discussion
Our results provide detailed insights into the factors that influence analysts’
evaluations of CEO behaviour, of a company they follow, both before and during
a restatement crisis occurs. An overview of our findings is provided in Table 3.18.
First, the results show that earnings management pressures, job demands, and
task challenges - factors which we hypothesized would negatively influence
analyst judgments of CEO behaviour - did not significantly negatively affect such
judgments before a restatement occurred. On the contrary, perceived pressures to
manage earnings and perceived task challenges actually had a positive effect on
perceived CEO behaviour before the restatement crisis. After a restatement was
announced, perceived task challenges did negatively affect perceived behaviour,
and perceived job demands negatively affected the degree to which the CEO was
seen as taking the blame for the restatement. In addition, after the restatement
was announced, the degree to which analysts regretted the recommendations they
made before the restatement negatively influenced their perception of the CEO’s
behaviour during the restatement crisis.
Overall, our findings show that perceived pressures on the CEO to manage earnings,
as well as the degree of task challenges posed to him, and contrary to our hypotheses,
seem not to be regarded as negative by analysts before a restatement. However, once
the restatement crisis hits, analysts do regard these pressures as having a negative
effect on CEO behaviour. This pattern is illustrated in Figures 3.7 and 3.8, which show
the effects of earnings management pressures and task challenges on the different
types of CEO behaviour. Furthermore, when analysts are strongly disappointed by
the restatement and regret their own previous recommendations, their perceptions
of the CEO’s attempts to remedy a company’s situation after a restatement is
announced suffers, even when other factors are kept constant, such as the degree of
pressure on the CEO. Both these effects suggest some influence of a certain degree
of irrationality (or bias) on the part of the analysts. Such an ‘irrational’ situation is
more likely when the analysts perceive more distortion and malicious intent to be
present in the restatement crisis. This is because analyst disappointment, perceived
earnings management pressures and perceived task challenges all increase when
the restatement moves to the upper right-hand quadrant of the intent/distortion
matrix.
Chapter 3 – Study 2: Analysts’ Perceptions of CEO Behaviour in Restatement Situations
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