Modeling for CEO Human Capital Measurement by Shannon Entropy Index and It’s Effect on Earnings Forecasts Quality

A review of the accounting theoretical literature confirms the role of CEO human capital as a valuable intangible asset for the company. The purpose of this study is to determine the effective criteria on the CEO human capital and to explain a comprehensive and multi-criteria model for measuring the CEO human capital of Iranian corporate and evaluate the impact of that on the Earnings Forecasts Quality. For this purpose, firstly, the CEO human capital criteria were identified according to Iranian information environment and experts' opinions regarding the weight and importance of each of these criteria collected through a questionnaire and explained using the Shannon entropy technique of comprehensive CEO human capital model. Then, using the proposed model, the CEO human capital index was calculated for a sample of 70 the firms listed on the Tehran Stock Exchange during the period 2012-2017 and the impact of CEO human capital on Earnings Forecasts Quality was tested by estimating the regression model. The results of the research show that Education level, work experience (tenure) and industry-related field of study are recognized by the CEO as important criteria from the experts' point of view. Also, the results of the analysis of the research hypothesis showed that the improvement of the CEO human capital index has a positive effect on the horizon of earning forecast and reduces the bias of earning forecast. While the impact of the CEO human capital on the error of earning forecast and the range of earning forecast was not confirmed.