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 :

March 18 2019
SSRN Share


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

Two laboratory experiments and a survey show that investors perceive a CEO to be more committed to honesty when the CEO resisted, at a personal cost, engaging in earnings management.

For investment decisions, a one standard deviation increase in a CEO's perceived commitment to honesty compared to another CEO reduces the relevance of differences in the CEOs’ claimed future returns by 40%. This effect is prominent among investors with a proself value orientation. To prosocial investors, their own honesty values and those attributed to the CEO matter directly; returns play a secondary role. Overall, CEO honesty matters to different investors for distinct reasons.

Published in

Published in: 
Publication Title: 
Swiss Finance Institute
Research Paper No. 17-03


Real name:
Matthias Sohn
Real name:
Carmen Tanner