Professor Yongbin Lv, Deputy Director of the Base, has had his paper The dark side of integrity: a case of risk-taking published in Journal of Accounting Literature, a prominent academic journal.

Abstract: Executive integrity is widely recognized as a valuable trait that boosts firm value, yet a critical puzzle persists: why do numerous firms still underinvest in executives with high integrity? This study probes into this paradox by investigating the unintended consequences of executive integrity on corporate risk-taking.Design/methodology/approach: Building on behavioral consistency theory (which holds that individual behavior exhibits cross-domain consistency) and regulatory focus theory (which associates high integrity with a prevention focus that prioritizes loss avoidance), we argue that executives with high integrity may display risk aversion, resulting in a decline in corporate risk-taking. We construct a textual measure of executive integrity through machine learning analysis of the annual reports of Chinese listed firms spanning 2000–2020, and measure corporate risk-taking based on return on asset volatility and stock return volatility. Regression analysis is employed to test the research hypothesis, supplemented by a series of robustness tests.Findings: We find that firms led by high-integrity executives exhibit significantly lower levels of risk-taking. This effect is manifested through conservative corporate policies, including reduced M&A activities, lower leverage ratios, higher liquidity levels, decreased R&D investment, and less risky executive compensation schemes. Furthermore, we document that the external environmental risk-taking propensity faced by executives, chairman tenure and analyst attention mitigate the negative impact of executive integrity on corporate risk-taking, whereas a harsh operating environment amplifies this effect. Importantly, we show that such reduced risk-taking deviates from the optimal level: high-integrity executives impair firms' capital allocation efficiency.Originality/value: Our research uncovers a dark side of executive integrity, which provides novel insights for corporate governance practices, especially in terms of executive selection and risk oversight.

Keywords: Executive integrity, Risk preference, Corporate policies, Firm risk-taking

Link: https://doi.org/10.1108/JAL-05-2025-0234

Teacher profile

Yongbin Lv,Vice Dean, Professor and PhD Supervisor of the School of Finance at Zhongnan University of Economics and Law, and Deputy Director of the International Joint Research Center for Digital Technology and Modern Finance. His primary research interests include digital finance, climate finance and inclusive finance. He has published numerous papers in core domestic and international journals (including JCR Q1 papers with an IF of 9.0) such as Journal of Financial Research, Public Finance Research, Finance Research Letters and China Finance Review International. He has authored and compiled multiple monographs and textbooks including Digital Inclusive Finance: Theoretical Logic and Economic Effects. He has presided over or participated in major and general projects of the National Social Science Fund, as well as a number of research projects commissioned by government agencies and enterprises. His research achievements have repeatedly won provincial-level outstanding achievement awards, and his policy advisory reports have received written comments and approvals from provincial leaders. Meanwhile, he has guided students to win numerous awards in national competitions on multiple occasions, and has personally been honored with many titles such as "Young Research Star" and "Excellent Communist Party Member".