CEO Hubris and Its Impacts on Fair Value Accounting of Securitization

Abstract

The purpose of this paper is to examine how fair value accounting of securitization is influenced by an underlying personality trait. In this case, the underlying personality trait in focus is hubris. In particular, it is expected that hubristic CEOs report larger gains from securitization due to the use of lower discount rates in the fair value estimations. To gauge hubris, the study evaluates CEO letters to shareholders for US bank holdings companies through the textual analysis software DICTION. This is intended to provide an indirect measure of CEO personality traits. In contrast to hypothesized, the findings suggest that hubris is not a contributing factor to fair value evaluations of securitization and thus the gains are not statistically different from that of less hubristic CEOs. Contributions are made to research examining securitization and corporate decision-making; CEO profiling; as well as fair value and accounting choice theory by showing that unintended decisions of more hubristic CEOs do not impact the accounting method nor the financial reporting through the use of discretion involved in securitization transactions.