Managerial Academic Experience, External Monitoring, and Financial Reporting Quality

This study examines the effect of managerial academic experience on firms’ financial reporting quality. Using data from China, we find that firms with top managers possessing academic experience exhibit lower levels of both accrual and real earning management, along with a lower probability of future restatements. This effect is more pronounced for firms with inefficient external monitoring, suggesting that the higher financial reporting quality is mainly explained by the managers’ intrinsic motivation to report truthfully. The results hold when we use firm fixed-effect regressions, instrumental variable two-stage regressions, and propensity score matching (PSM) approach to mitigate the omitted variable and endogeneity concerns. Our study suggests that academic experience can serve as a source of valuable expertise for corporate executives.

Keywords: academic experience; top management team; financial reporting quality; earnings management; expertise; external monitoring; imprinting; intrinsic motivation

JEL Classification: D83; J62; M41; M51

Suggested Citation: Suggested Citation

Ma, Zhiming and Novoselov, Kirill E. and Zhou, Kaitang and Zhou, Yi, Managerial Academic Experience, External Monitoring, and Financial Reporting Quality (July 2019). Journal of Business Finance and Accounting, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3415757