What is it about?
On June 27, 2002, the Securities and Exchange Commission of the United States ordered the CEOs and CFOs of 688 large firms to certify the earnings numbers of their companies by 5:30PM EST, Aug 14, 2002. This paper uses this natural experiment to find that certification was not only a non-event for the certifiers around their certification date, but it was also a non-event for the non-certifiers around Aug 15, 2002. Further tests make us conclude that CEO certification of earnings numbers is not value-relevant.
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Why is it important?
Corporate governance mechanisms try to align the interests of management with the interests of shareholders. This is the first paper to use a natural experiment to explore whether CEO certification of earnings numbers is regarded by the market as a significant addition to the arsenal of good corporate governance mechanisms. The answer turns out to be no. CEO certification is not considered value-relevant. The paper was featured in the Economist on September 26, 2002, and in the New York Times on March 2, 2003.
Perspectives
This was the first paper I wrote in real time when the data was still being generated.
Professor Utpal Bhattacharya
Hong Kong University of Science and Technology
Read the Original
This page is a summary of: Is CEO certification of earnings numbers value-relevant?, Journal of Empirical Finance, December 2007, Elsevier,
DOI: 10.1016/j.jempfin.2007.04.002.
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