Zusammenfassung:
We examine how a CEO develops a reputation for credible financial reporting and how this reputation influences investor reactions to earnings announcements. We find that investors discount earnings news when CEOs have both strong incentives to misreport and weak reporting reputations. Further, we show that the reputation for reporting integrity is CEO-specific- a firm can restore its reputation for credible financial reporting by appointing a new CEO. Disclosures about discretionary accruals, like the allowance for doubtful accounts, play a key role in shaping these reputations. Our findings underscore the importance of ethical reporting.