The Association Between CEO Individual Characteristics And SEC Monitor

The United State Congress passed1933Act and1934Act. According to these Acts, listed firms are required to disclose financial information truthfully, reliably and completely. With the Security Exchange Act of1934, the U.S. Congress created the Securities and Exchange Commission (SEC), empowering it with board authorities over all aspects of monitoring the security industry to protect interest of investors. There are various factors that trigger SEC’s investigation into a firm. Previous research mainly focuses on financial index which reflect firms’ profitability, growth, deferred taxes or accruals. This paper studies whether CEO facial structure can trigger SEC investigation into a firm, which provides a novel angle. This paper has important theoretical and empirical implications.This paper examines the relationship between Chief Executive Officer (CEO) s’facial width-to-height ratios and the likelihood of getting Securities and Exchange Committee (SEC)’s investigation. Matching313CEOs’facial width-to-height ratio of AAER firms with the313CEOs’facial width-to-height ratio of non-AAER firms in a period from1993to2009; we testified that a CEO with a higher width-to-height ratio tends to be more likely to suffer from SEC’s investigation. Next, we drop the pairs of low quality pictures, the remaining191pairs of good quality pictures also showed significant positive relationship between CEOs’facial width-to-height ratio and the likelihood of getting SEC investigation. Finally, we conducted sensitivity analysis to show that the positive correlation between CEOs’facial width-to-height ratio (whr) and likelihood of getting SEC’s investigation is robust based on different facial width-to-height measurement. This paper complements studies on SEC monitoring. Meanwhile, the association between facial structure and the SEC’s investigation suggests that biological characters can also influence market monitor’s decision, which relates genetically inherited factors with realistic financial consequence.The rest part of this paper is organized as follows:Next section reviews previous literature that motivates our research question and hypothesis based on the discussion of existing literature related to this topic. The third part is research design section in which we introduce the sample construction procedure, empirical model development and variable definitions. The last two sections are empirical result section and conclusion section respectively. The former discusses our findings according to conditional logit regression and the latter summaries the limitation and possible future research of our study. Reference section provides a list of related literature quoted in this study.