Ex-military CEOs and income smoothing

Purpose This study aims to examine whether CEOs with prior military service engage in greater accrual-based income smoothing than their nonmilitary counterparts, and whether such smoothing enhances or diminishes the informativeness of current earnings and stock prices in predicting future firm performance. Design/methodology/approach Using a sample of 34,357 US firm-year observations spanning 1993–2022, the authors identify military CEO status through multiple biographical sources including BoardEx, Capital IQ and Marquis Who’s Who, and measure income smoothing as a composite factor score derived from three established proxies. The results are robust across multiple identification strategies addressing endogeneity concerns, including firm fixed effects, propensity score matching, entropy balancing and instrumental variable analyses. Findings Firms led by ex-military CEOs engage in significantly greater income smoothing. Importantly, this smoothing enhances the informativeness of both current earnings and current stock prices with respect to future performance, suggesting that military-trained CEOs use smoothing strategically as a signaling mechanism rather than opportunistically. Originality/value This study identifies military experience as a novel, psychologically grounded determinant of income smoothing, demonstrating that formative imprinting experiences outside the corporate domain leave enduring marks on executives’ financial reporting practices. The findings contribute to the earnings quality literature by showing that the intent and consequences of smoothing vary systematically with managerial background.