Prosocial CEOs and Accounting Manipulation

ABSTRACT This paper examines the association between CEOs' prosocial tendency and their firms' likelihood of accounting manipulation. We measure CEOs' prosocial tendency based on their involvement with charitable organizations. We find that prosocial CEOs are less likely to engage in accounting manipulation, as proxied by material non‐reliance restatements and SEC or US Department of Justice enforcement actions. The effect is more pronounced when CEOs are involved with charities that directly aim to improve the welfare of others and when they face stronger incentives to misreport. These results continue to hold in analyses of changes in CEOs' prosocial tendency around turnover events. Taken together, our findings suggest that CEOs' prosocial tendency, a fundamental personal trait, plays a significant role in shaping the quality of accounting information.