The effect of managers’ ethical and behavioral characteristics on investors’sSentiment

Hosseinpour, A.; Ranjbar, M.; Asadnia, J.; Ahmadi, F.

doi:10.22035/isih.2020.3935.4043

Document Type : Original Research Paper

Authors

¹ PhD Student in Accounting, Department of Accounting and Financial Management, Faculty of Humanities, Qeshm Branch, Islamic Azad University, Qeshm, Iran

² Assistant Professor, Department of Accounting and Financial Management, Faculty of Humanities, Bandar Abbas Branch, Islamic Azad University, Bandar Abbas, Iran

³ PhD in Accounting, Department of Accounting and Financial Management, Faculty of Humanities, Qeshm Branch, Islamic Azad University, Qeshm, Iran

⁴ Assistant Professor, Department of Accounting and Financial Management, Faculty of Humanities, Qeshm Branch, Islamic Azad University, Qeshm, Iran

https://doi.org/10.22035/isih.2020.3935.4043

Abstract

Behavioral and psychological factors, such as power, agency costs, profit management, and myopic behavior of managers can affect information transparency and cause significant changes. Evidence, on the other hand, suggests that investors determine the value of stocks under the influence of judgments based on mental imagery, unscientific information, and the psychological and emotional conditions of the stock exchange. However, investors can be present in this market relying on information transparency. Therefore, considering the importance of these relations for market, the present study is an attempt to investigate the effect of managers' ethical and behavioral characteristics on investors’ sentiments in companies listed on the Tehran Stock Exchange. For this purpose, hypotheses are developed and data of Companies listed on Tehran Stock Exchange during 2009 to 2018 are analyzed. The statistical population of the study includes 150 companies, selected by systematic elimination. The regression model of the research is tested using panel data method with integrated effects approach. The results show that with regard to the effect of managers’ ethical and behavioral characteristics, optimism, short-sightedness, agency behavior, and profit management intensify investors' sentiment and have a positive and significant effect on it by reducing transparency in firms’ decision-making environment. Moreover, the results confirm that the managerial power index, which reflects manager's authoritative behavior, has no significant effect on investors' sentiment.

Keywords

Main Subjects

Innovation and Technology

References

Ang, J. S., Cole, R. A., & Lin, J. W. (2000). Agency Costs and Ownership Structure. The Journal of Finance, 55(1), 81–106. doi:10.1111/0022-1082.00201

Cornell, B., Landsman, W.R., & Stubben, S.R. (2017). Accounting information, investor sentiment, and market pricing. Journal of Law, Finance, and Accounting, 2(2), 325-345. doi: 10.1561/108.00000017

Ben Mohamed, E., Fairchild, R., & Bouri, A. (2014). Investment cash flow sensitivity under managerial optimism: New evidence from NYSE panel data firms. Journal of Economics Finance and Administrative Science, 19(36), 11–18. doi:10.1016/j.jefas.2014.04.001

Chen, W. (2013). Can Corporate Governance Mitigate the Adverse Impact of Investor Sentiment on Corporate Investment Decisions? Evidence from Taiwan. Asian Journal of Finance & Accounting, 5(2), 101. doi:10.5296/ajfa.v5i2.4117

Chen, Y.-F., Lin, F.-L., & Yang, S.-Y. (2015). Does institutional short-termism matter with managerial myopia? Journal of Business Research, 68(4), 845–850. doi:10.1016/j.jbusres.2014.11.039

Chung, H. H., Wynn, J. P., & Yi, H. (2013). Litigation risk, accounting quality, and investment efficiency. Advances in Accounting, 29(2), 180–185. doi:10.1016/j.adiac.2013.09.009CORNELL

Dechow, P., Sloan, R., & Sweeney, A. (1995). Detecting Earnings Management. The Accounting Review, 70(2), 193-225.

DeFond, M., & Zhang, J. (2014). A review of archival auditing research. Journal of Accounting and Economics, 58(2-3), 275–326. doi:10.1016/j.jacceco.2014.09.002

Demerjian, P., Lev, B., & McVay, S. (2012). Quantifying Managerial Ability: A New Measure and Validity Tests. Management Science, 58(7), 1229–1248. doi:10.1287/mnsc.1110.1487

Fadayinejad, M., & Delshad, A. (2016). Investigating the effect of managers' short-sightedness on the future returns of companies listed on the Tehran Stock Exchange, Financial Management Perspective, 21, 51-69.

Ghaderi, K., Ghaderi, S., & Ghaderi, S. (2016). The effect of behavioral factor on managers' overconfidence on the effectiveness of risk management. Financial Accounting and Auditing Research, 10 (37), 243-272.

Huang, X. (2015). Managerial ability and real earnings management. UnpublishedDoctoral Dissertation, Oklahoma University.

Hurwitz, H. (2017). Investor sentiment and management earnings forecast bias. Journal of Business Finance & Accounting, 45(1-2), 166–183. doi:10.1111/jbfa.12282

Keller, G., & Warrack, B. (2003). Statistics for management and economics. Pacific Grove, CA: Thomson/Brooks/Cole.

Kheirkhah, M., Aghaei, M., & Nouranifar, E. (2019). The Review of the Effect of Audit Quality Informational Consequences on the Investors' Decisions with Emphasis on Audit Partners' Switches. Journal of Accounting and Auditing Research. 11(41),111-128.

Koutmos, D., & Song, W. (2014). Speculative dynamics and price behavior in the Shanghai Stock Exchange. Research in International Business and Finance, 31, 74–86. doi:10.1016/j.ribaf.2013.11.006

Kraft, A. G., Vashishtha, R., & Venkatachalam, M. (2017). Frequent Financial Reporting and Managerial Myopia. The Accounting Review, 93(2), 249–275. doi:10.2308/accr-51838

Li, L., Tong, W. H. S., & Cheng, P. (2012). Managerial Overconfidence, CEO Selection and Corporate Investment: An Empirical Analysis. SSRN Electronic Journal. doi:10.2139/ssrn.2121054

Lin, Y., Hu, S., & Chen, M. (2005). Managerial optimism and corporate investment: Some empirical evidence from Taiwan. Pacific-Basin Finance Journal, 13(5), 523–546. doi:10.1016/j.pacfin.2004.12.003

Ma, Z., Wu, L., Zhang, J., & Zhou, K. (2017). Sentiment and Audit Quality. SSRN Electronic Journal. doi:10.2139/ssrn.3023363

Mizik, N. (2010). The Theory and Practice of Myopic Management. Journal of Marketing Research, 47(4), 594–611. doi:10.1509/jmkr.47.4.594

Moradi, J., & Bagheri, H. (2014). A comparative investigation into the Effects of Management Myopia and Earnings Management on Stock Return. Accounting and Auditing Review, 21(2), 229-250. doi: 10.22059/acctgrev.2014.50774

Salehi, A., Mosavei, R., & Moradi, M. (2017). An investigate the effect managerial optimism on investment sensitivity to cash flow. Financial Knowledge of Securities Analysis, 10(33), 65-76.

Shafiei, H., Khodamipour, A., & Dastgir, M. (2017). The Impact of Macroeconomic Indicates on Social Responsibility of Companies. Interdisciplinary Studies in the Humanities, 10(1), 155-173. doi: 10.22631/isih.2017.229

Tehrani, R., & Delshad, A. (2018). Investigation of Managerial Myopia on Future Financial Performance in Companies Listed on Tehran Stock Exchange. Journal of Accounting Research, 8(2), 23-46. doi: 10.22051/ijar.2018.14229.1275

Tinga, I., Leanb, H, H., Kwehc, Q, L., & Azizand., N, A., (2016). Impact of Managerial Overconfidence and Government Intervention on Firm Leverage Decision: A MARS Model Approach. Institutions and Economies 8(3), 85-104.

Vo, X. V., & Phan, D. B. A. (2017). Further evidence on the herd behavior in Vietnam stock market. Journal of Behavioral and Experimental Finance, 13, 33–41. doi:10.1016/j.jbef.2017.02.003

Watts, R. L., & Zimmerman, J. L. (1986). Positive accounting theory. Englewood Cliffs, N.J: Prentice-Hall.

Zhu, B., & Niu, F. (2016). Investor sentiment, accounting information and stock price: Evidence from China. Pacific-Basin Finance Journal, 38, 125–134. doi:10.1016/j.pacfin.2016.03.010

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Interdisciplinary Studies in the Humanities

The effect of managers’ ethical and behavioral characteristics on investors’sSentiment

References

References

Ang, J. S., Cole, R. A., & Lin, J. W. (2000). Agency Costs and Ownership Structure. The Journal of Finance, 55(1), 81–106. doi:10.1111/0022-1082.00201

Cornell, B., Landsman, W.R., & Stubben, S.R. (2017). Accounting information, investor sentiment, and market pricing. Journal of Law, Finance, and Accounting, 2(2), 325-345. doi: 10.1561/108.00000017

Ben Mohamed, E., Fairchild, R., & Bouri, A. (2014). Investment cash flow sensitivity under managerial optimism: New evidence from NYSE panel data firms. Journal of Economics Finance and Administrative Science, 19(36), 11–18. doi:10.1016/j.jefas.2014.04.001

Chen, W. (2013). Can Corporate Governance Mitigate the Adverse Impact of Investor Sentiment on Corporate Investment Decisions? Evidence from Taiwan. Asian Journal of Finance & Accounting, 5(2), 101. doi:10.5296/ajfa.v5i2.4117

Chen, Y.-F., Lin, F.-L., & Yang, S.-Y. (2015). Does institutional short-termism matter with managerial myopia? Journal of Business Research, 68(4), 845–850. doi:10.1016/j.jbusres.2014.11.039

Chung, H. H., Wynn, J. P., & Yi, H. (2013). Litigation risk, accounting quality, and investment efficiency. Advances in Accounting, 29(2), 180–185. doi:10.1016/j.adiac.2013.09.009CORNELL

Dechow, P., Sloan, R., & Sweeney, A. (1995). Detecting Earnings Management. The Accounting Review, 70(2), 193-225.

DeFond, M., & Zhang, J. (2014). A review of archival auditing research. Journal of Accounting and Economics, 58(2-3), 275–326. doi:10.1016/j.jacceco.2014.09.002

Demerjian, P., Lev, B., & McVay, S. (2012). Quantifying Managerial Ability: A New Measure and Validity Tests. Management Science, 58(7), 1229–1248. doi:10.1287/mnsc.1110.1487

Fadayinejad, M., & Delshad, A. (2016). Investigating the effect of managers' short-sightedness on the future returns of companies listed on the Tehran Stock Exchange, Financial Management Perspective, 21, 51-69.

Ghaderi, K., Ghaderi, S., & Ghaderi, S. (2016). The effect of behavioral factor on managers' overconfidence on the effectiveness of risk management. Financial Accounting and Auditing Research, 10 (37), 243-272.

Huang, X. (2015). Managerial ability and real earnings management. UnpublishedDoctoral Dissertation, Oklahoma University.

Hurwitz, H. (2017). Investor sentiment and management earnings forecast bias. Journal of Business Finance & Accounting, 45(1-2), 166–183. doi:10.1111/jbfa.12282

Keller, G., & Warrack, B. (2003). Statistics for management and economics. Pacific Grove, CA: Thomson/Brooks/Cole.

Kheirkhah, M., Aghaei, M., & Nouranifar, E. (2019). The Review of the Effect of Audit Quality Informational Consequences on the Investors' Decisions with Emphasis on Audit Partners' Switches. Journal of Accounting and Auditing Research. 11(41),111-128.

Koutmos, D., & Song, W. (2014). Speculative dynamics and price behavior in the Shanghai Stock Exchange. Research in International Business and Finance, 31, 74–86. doi:10.1016/j.ribaf.2013.11.006

Kraft, A. G., Vashishtha, R., & Venkatachalam, M. (2017). Frequent Financial Reporting and Managerial Myopia. The Accounting Review, 93(2), 249–275. doi:10.2308/accr-51838

Li, L., Tong, W. H. S., & Cheng, P. (2012). Managerial Overconfidence, CEO Selection and Corporate Investment: An Empirical Analysis. SSRN Electronic Journal. doi:10.2139/ssrn.2121054

Lin, Y., Hu, S., & Chen, M. (2005). Managerial optimism and corporate investment: Some empirical evidence from Taiwan. Pacific-Basin Finance Journal, 13(5), 523–546. doi:10.1016/j.pacfin.2004.12.003

Ma, Z., Wu, L., Zhang, J., & Zhou, K. (2017). Sentiment and Audit Quality. SSRN Electronic Journal. doi:10.2139/ssrn.3023363

Mizik, N. (2010). The Theory and Practice of Myopic Management. Journal of Marketing Research, 47(4), 594–611. doi:10.1509/jmkr.47.4.594

Moradi, J., & Bagheri, H. (2014). A comparative investigation into the Effects of Management Myopia and Earnings Management on Stock Return. Accounting and Auditing Review, 21(2), 229-250. doi: 10.22059/acctgrev.2014.50774

Salehi, A., Mosavei, R., & Moradi, M. (2017). An investigate the effect managerial optimism on investment sensitivity to cash flow. Financial Knowledge of Securities Analysis, 10(33), 65-76.

Shafiei, H., Khodamipour, A., & Dastgir, M. (2017). The Impact of Macroeconomic Indicates on Social Responsibility of Companies. Interdisciplinary Studies in the Humanities, 10(1), 155-173. doi: 10.22631/isih.2017.229

Tehrani, R., & Delshad, A. (2018). Investigation of Managerial Myopia on Future Financial Performance in Companies Listed on Tehran Stock Exchange. Journal of Accounting Research, 8(2), 23-46. doi: 10.22051/ijar.2018.14229.1275

Tinga, I., Leanb, H, H., Kwehc, Q, L., & Azizand., N, A., (2016). Impact of Managerial Overconfidence and Government Intervention on Firm Leverage Decision: A MARS Model Approach. Institutions and Economies 8(3), 85-104.

Vo, X. V., & Phan, D. B. A. (2017). Further evidence on the herd behavior in Vietnam stock market. Journal of Behavioral and Experimental Finance, 13, 33–41. doi:10.1016/j.jbef.2017.02.003

Watts, R. L., & Zimmerman, J. L. (1986). Positive accounting theory. Englewood Cliffs, N.J: Prentice-Hall.

Zhu, B., & Niu, F. (2016). Investor sentiment, accounting information and stock price: Evidence from China. Pacific-Basin Finance Journal, 38, 125–134. doi:10.1016/j.pacfin.2016.03.010

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Volume 12, Issue 4 - Serial Number 48
July 2020
Pages 129-158

References

Send comment about this article

Volume 12, Issue 4 - Serial Number 48July 2020Pages 129-158

Volume 12, Issue 4 - Serial Number 48
July 2020
Pages 129-158