Measuring executive personality using machine-learning algorithms: A new approach and audit fee-based validation tests

Result code in IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F00216208%3A11230%2F20%3A10410967" target="_blank" >RIV/00216208:11230/20:10410967 - isvavai.cz</a>

Result on the web

<a href="https://verso.is.cuni.cz/pub/verso.fpl?fname=obd_publikace_handle&handle=UPd9kWfSEs" target="_blank" >https://verso.is.cuni.cz/pub/verso.fpl?fname=obd_publikace_handle&handle=UPd9kWfSEs</a>

DOI - Digital Object Identifier

<a href="http://dx.doi.org/10.1111/jbfa.12406" target="_blank" >10.1111/jbfa.12406</a>

Result language

angličtina

Original language name

Measuring executive personality using machine-learning algorithms: A new approach and audit fee-based validation tests

Original language description

We present a novel approach for measuring executive personality traits. Relying on recent developments in machine learning and artificial intelligence, we utilize the IBM Watson Personality Insights service to measure executive personalities based on CEOs&apos; and CFOs&apos; responses to questions raised by analysts during conference calls. We obtain the Big Five personality traits - openness, conscientiousness, extraversion, agreeableness and neuroticism - based on which we estimate risk tolerance. To validate these traits, we first demonstrate that our risk-tolerance measure varies with existing inherent and behavioural-based measures (gender, age, sensitivity of executive compensation to stock return volatility, and executive unexercised-vested options) in predictable ways. Second, we show that variation in firm-year level personality trait measures, including risk tolerance, is largely explained by manager characteristics, as opposed to firm characteristics and firm performance. Finally, we find that executive inherent risk tolerance helps explain the positive relationship between client risk and audit fees documented in the prior literature. Specifically, the effect of CEO risk-tolerance - as an innate personality trait - on audit fees is incremental to the effect of increased risk appetite from equity risk-taking incentives (Vega). Measuring executive personality using machine-learning algorithms will thus allow researchers to pursue studies that were previously difficult to conduct.

Czech name

—

Czech description

—

Type

J_imp - Article in a specialist periodical, which is included in the Web of Science database

CEP classification

—

OECD FORD branch

50201 - Economic Theory

Project

<a href="/en/project/GA15-13040S" target="_blank" >GA15-13040S: Accounting Earnings Quality, Insider Trading Profitability and Stock Price Informativeness</a><br>

Continuities

P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Publication year

2020

Confidentiality

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Name of the periodical

Journal of Business Finance and Accounting

ISSN

0306-686X

e-ISSN

—

Volume of the periodical

47

Issue of the periodical within the volume

3-4

Country of publishing house

GB - UNITED KINGDOM

Number of pages

26

Pages from-to

519-544

UT code for WoS article

000530550000008

EID of the result in the Scopus database

2-s2.0-85073987772