The effect of CEO psychological traits on the earnings manipulation probability (EMP) based on the Beneish M-Score model and the auditor's response to it

Abstract

Introduction:The destructive effects of corporate earnings manipulation and the contradictory empirical evidence surrounding the effect of CEO's psychological characteristics on the likelihood of earnings manipulation have doubled need to explain the reasons for this relationship.Given that the decision to manipulate profits is with the management of the company, so his psychological characteristics can be effective in whether or not to manipulate profits. The purpose of this study is to investigate the effect of narcissistic and overconfidence characteristics of the CEO on the possibility of profit manipulation using the Benish model and to analyze the auditor's reaction to the possibility of profit manipulation.MethodsThe present research is applied in terms of purpose and the research method is post-event causal. To test the research hypotheses, 156 companies have been selected from the companies listed on the Tehran Stock Exchange in the period 2012-2018.ResultsThe results of the research using binary logistic regression indicate the effect of CEO narcissism on the possibility of profit manipulation using the modified Banish model. Also, other research hypotheses about the relationship between CEO overconfidence and the possibility of profit manipulation as well as the auditor's reaction to the possibility of profit manipulation were not confirmed.

Keywords

• narcissism
• overconfidence
• earnings manipulating posibilitiy
• beneish m-score model
• auditor's reaction