CEO characteristics, accounting opacity and stock price synchronicity: Empirical evidence from German listed firms

• Author: Souhir Neifar,Hana Ajili
• Date: 01 April 2019
• Published date: 01 April 2019
• DOI: http://doi.org/10.1002/jcaf.22386

BLIND PEER REVIEW

CEO characteristics, accounting opacity and stock price

synchronicity: Empirical evidence from German listed firms

Souhir Neifar | Hana Ajili

Department of Accounting, Faculty of

Economics and Management of Sfax

Tunisia, Laboratory GFC, Sfax, Tunisia

Correspondence

Souhir Neifar, Department of Accounting,

Faculty of Economics and management of

Sfax Tunisia, Laboratory GFC, Sfax,

Tunisia.

Email: neifar.souhir@yahoo.fr

Abstract

We examine the influence of accounting opacity (earnings management [EM] and

tax aggressiveness [TA]) and CEO characteristics (CEO age and tenure) on stock

price synchronicity (SPS) of German companies and we test if CEO age and CEO

tenure moderate the relation between EM, TA, and SPS. Using the GLS regression,

we find that TA and EM have a significant positive effect on SPS. CEO age nega-

tively moderates the relation between TA and SPS. CEO tenure affects positively

SPS, but did not moderate neither the relation between EM and SPS nor the rela-

tion between TA and SPS. We use several robustness tests that confirm our main

analysis.

KEYWORDS

accounting opacity, CEO age, CEO tenure, earnings management, stock price synchronicity, tax

aggressiveness

JEL CLASSIFICATION

M41; M49

1|INTRODUCTION

Financial reporting is the main source of information for

shareholders. In addition, due to the information asymmetry

in the firm, investors occur great attention to relevant infor-

mation that help them to took their investment decision. For

this, studying the relationship between accounting informa-

tion and capital markets has attached considerable attention

(Dumontier & Raffournier, 2002). Previous studies have

analyzed the effect of several accounting variables on stock

price crash risk (as An & Zhang, 2013; Kim & Zhang, 2016;

Kim, Li, & Zhang, 2011; Neifar & Utz, 2019). Other studies

have analyzed the effect of corporate governance on SPS

(as Ntow-Gyamfi, Bokpin, & Gemegah, 2015). Recently,

other researchers examine the effect of different type of

investors (foreign, political connection) on SPS (Tee, 2017;

Vo, 2017). However, there is a dearth of information on the

analyzing of the effect of accounting opacity on SPS.

The studying of SPS is relatively new as it was beginning

with Morck, Yeung, and Yu (2000) who document that SPS

is the extent to which the stock return of a particular firm co-

moves with the market return. According to Du, Hao, and

Xu (2007), SPS refers to the level to which individual firm

stock price move up and down in masse. Ntow-Gyamfi et al.

(2015) add that if the market is more synchronous then gen-

erally the prices of individual stocks vary together.

Multiples are causes for the importance of studying SPS.

Morck, Shleifer, and Vishny (1989) show that a negative

firm-specific stock market performance can cause dismiss of

the CEO by the board. Second, and as underlined by

Durnev, Morck, and Yeung (2004), if there is less synchro-

nicity, returns become more efficient in predicting the

change in future earnings. Thus, SPS can be viewed as a pre-

dictive power of the “information content”of stock prices

(Collins, Kothari, & Rayburn, 1987). Ferreira and Laux

(2007) conclude that the inverse of synchronicity can be

used as a good measure of information inflow, particularly

Received: 21 March 2019 Accepted: 27 March 2019

DOI: 10.1002/jcaf.22386

J Corp Acct Fin. 2019;30:29–43. wileyonlinelibrary.com/journal/jcaf © 2019 Wiley Periodicals, Inc. 29