Military Managers and Earnings Management

53 Pages Posted: 17 Nov 2020 Last revised: 31 Jan 2023

See all articles by Li Lai

Li Lai

Southwestern University of Finance and Economics (SWUFE)

Hanyi Tian

Southwestern University of Finance and Economics (SWUFE)

Zhi Wang

Southwestern University of Finance and Economics (SWUFE)

Frank Yu

China Europe International Business School

Date Written: May 1, 2022

Abstract

In a developing market, how do managers with previous military experience (military managers) affect the quality of financial reporting? Using a sample of Chinese firms, we find that firms with military managers are associated with higher levels of earnings management, through both accrual-based and real-activities manipulations. Those firms are more susceptible to financial restatements, qualified audit opinions, and penalties for violation. To alleviate endogeneity problems, we use both the instrumental variable regression and propensity score matching, and our results are robust. In addition, the effect of military managers is more pronounced in state-owned firms and firms with weak internal control systems. These findings improve our understanding of the link between managerial traits and financial reporting decisions, in an environment where the major governance issue is the conflict between majority and minority shareholders.

Keywords: Corporate governance, Earnings management, Military experience

JEL Classification: G30, M41, J24

Suggested Citation

Lai, Li and Tian, Hanyi and Wang, Zhi and Yu, Frank, Military Managers and Earnings Management (May 1, 2022). Available at SSRN: https://ssrn.com/abstract=3725580 or http://dx.doi.org/10.2139/ssrn.3725580

Li Lai

Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

Hanyi Tian

Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

Zhi Wang

Southwestern University of Finance and Economics (SWUFE) ( email )

China

Frank Yu (Contact Author)

China Europe International Business School ( email )

669 Hongfeng Road
Pudong
Shanghai, 201206
China

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