The Impact of Top Management Team Characteristics on the Choice of Earnings Management Strategies: Evidence from China

Abstract

SYNOPSIS Using a sample of Chinese A-share listed firms from 2000 to 2015, we investigate the association between a firm's use of earnings management strategies and the characteristics of its top management team. Our findings suggest that several demographic characteristics (i.e., age, gender, educational level, and financial work experience) of the entire team, as well as of the CEO/CFO and other team members separately, are significantly associated with both accrual-based and real-activities-based earnings management; these, in turn, may affect the quality of the firm's financial reporting. Our results are consistent with the predictions of the upper echelons theory and have implications for various stakeholders in corporate financial reporting, as well as providing insights to those responsible for selecting and developing upper-level executives. JEL Classifications: M40; M41. Data Availability: The data used in this paper are derived from public sources.

Sustainability reporting quality and post‐audit financial reporting quality: Empirical evidence from the UK

“…Post‐audit financial reporting quality is measured using earnings management constructs computed on the basis of financial reports issued after audit completion (LópezPuertas‐Lamy et al, 2017). The first measure I use for post‐audit financial reporting quality is real earnings management ( REM ), following prior studies (Cheng, Lee, & Shevlin, 2016; Cohen & Zarowin, 2010; Doukakis, 2014; Qi, Lin, Tian, & Lewis, 2017; Roychowdhury, 2006). To capture the total effects of real earnings management, I follow Cohen and Zarowin (2010) and use an aggregate measure of real earnings management calculated as the sum of abnormal discretionary expenses multiplied by negative ones (thus, the higher the amount, the more likely it is that the firm is cutting discretionary expenses) and abnormal production costs (increasing production to spread the fixed costs of production over a large number of units).…”

“…The second measure is performance‐matched real earnings management ( REM_pmatch ), where real earnings management is adjusted for the performance of a matched firm, following Cheng et al (2016). I also use the accrual‐based earnings management measure ( AEM ) as the third proxy, on the basis of the literature (e.g., Cohen & Zarowin, 2010; Dechow, Kothari, & Watts, 1998; Dechow, Sloan, & Sweeney, 1995; Doukakis, 2014; Mouselli, Jaafar, & Hussainey, 2012; Qi et al, 2017). (See Appendix B for detailed calculations of the earnings management metrics).…”

The Influence of a Company’s Ownership Structure on Upward Real Earnings Management

“…Cheng et al [68] found that the magnitude of real earnings management is reduced with key subordinate executives' horizons and influence. Qi et al [69] found that probability of engagement in real earnings management of older executives, female executives, and more educated executives is significantly lower; however, it is more probable for executives with experience in finance to engage in real earnings management.…”

Female Audit Partners and Extended Audit Reporting: UK Evidence

“…This study investigates how audit partner gender could influence the extent of auditor disclosure and the communication style regarding risks that are classified as key audit matters (KAMs). 1 The behavioural differences between males and females have been extensively examined in the business ethics literature (Carmona et al 2018;Kelan 2008;Qi et al 2018). Gender-related studies in the accounting and auditing profession suggest that women tend to be more riskaverse and acting more ethically, but other studies found no behavioural differences between genders in high-profile jobs and leadership positions (Elmagrhi et al 2019;Lara et al 2017;Ntim 2015;Sila et al 2016;Zalata et al 2019).…”

“…Gender-related studies in the accounting and auditing profession suggest that women tend to be more riskaverse and acting more ethically, but other studies found no behavioural differences between genders in high-profile jobs and leadership positions (Elmagrhi et al 2019;Lara et al 2017;Ntim 2015;Sila et al 2016;Zalata et al 2019). Despite inconsistent pieces of evidence, the existing research on gender behavioural differences appears tilted in favour of the positive implications of gender diversity for auditing and financial reporting quality (Qi et al 2018;Zalata et al 2019). In this study, we postulate that behavioural variances between female and male in risk aversion may have significant implications for audit reporting, especially after the recent reforms.…”