Corporate In-house Human Capital Investments in Accounting

54 Pages Posted: 18 Mar 2021 Last revised: 26 Mar 2021

See all articles by Xia Chen

Xia Chen

Singapore Management University

Qiang Cheng

Singapore Management University

Travis Chow

The University of Hong Kong

Yanju Liu

Hong Kong Baptist University – Department of Accountancy and Law

Date Written: February 28, 2021

Abstract

In this study, we provide large-sample evidence on how corporate in-house human capital investments in accounting affect earnings management. We construct a dataset of more than 411,000 individual-years of corporate accountants between 2009 and 2015 and measure firms’ accounting human capital using the proportion of their accountants with Big N work experience or a CPA designation. We find that firms with higher accounting human capital have a lower probability of accounting irregularities, lower discretionary accruals, better internal control quality, and fewer unintentional accounting errors. The results hold when we control for potential endogeneity by using the staggered adoption of the CPA mobility law and the number of top accounting undergraduate programs near the firm as instrumental variables for accounting human capital. We further find that firms with higher accounting human capital exhibit stronger market reactions to earnings news and pay lower audit fees, confirming that external stakeholders perceive these firms as having better financial reporting quality.

Keywords: accounting human capital, financial reporting quality, financial reporting credibility, audit fees

JEL Classification: D45, J24, M41, M42, M53

Suggested Citation

Chen, Xia and Cheng, Qiang and Chow, Travis and Liu, Yanju, Corporate In-house Human Capital Investments in Accounting (February 28, 2021). Available at SSRN: https://ssrn.com/abstract=3805840 or http://dx.doi.org/10.2139/ssrn.3805840

Xia Chen (Contact Author)

Singapore Management University ( email )

60 Stamford Rd.
Singapore 178900
Singapore

Qiang Cheng

Singapore Management University ( email )

60 Stamford Road
Singapore, 178900
Singapore

Travis Chow

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

Yanju Liu

Hong Kong Baptist University – Department of Accountancy and Law ( email )

Hong Kong

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