Investing in Managerial Honesty

Investing in Managerial Honesty

Alexander Wagner, Rajna Gibson Brandon, Matthias Sohn, Carmen Tanner

Series number :

Serial Number: 

Date posted :

July 20 2017

Last revised :

August 02 2017
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  • Honesty • 
  • Earnings management • 
  • market segmentation • 
  • investor preferences • 
  • social value orientation • 
  • protected values • 
  • trust

Two laboratory experiments 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.


Real name:
Matthias Sohn
Real name:
Carmen Tanner