Financial Reports and Social Capital
Texas A&M International University
August 30, 2013
American Accounting Association Annual Meeting, Denver, Colorado
I examine social capital’s impact on financial reports. Based on the social capital literature, I predict that the quality of the financial reports is higher when a firm is headquartered in a high social capital region. Consistent with this prediction, I find that a firm in a high social capital region manages its accruals to a lesser extent and has lower real earnings management, a lower propensity to be prosecuted for financial misrepresentation, and a more readable financial report. These results are robust to a wide range of firm-level and regional controls. Overall, the results show that a firm headquartered in a high social capital region has higher quality financial reports.
Number of Pages in PDF File: 94
Keywords: Social Capital, Financial Report, Discretionary Accruals, Real Earnings Management, Financial Fraud, Fog Index
JEL Classification: M14, M41
Date posted: July 25, 2011 ; Last revised: January 9, 2014
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