Management’s personal ideology and financial reporting quality

Matthew Notbohm (), Katherine Campbell, Adam R. Smedema and Tianming Zhang
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Matthew Notbohm: University of North Dakota
Katherine Campbell: University of North Dakota
Adam R. Smedema: Wisconsin School of Business at the University of Wisconsin-Madison
Tianming Zhang: Florida State University

Review of Quantitative Finance and Accounting, 2019, vol. 52, issue 2, No 7, 571 pages

Abstract: Abstract We investigate the relation between managers’ personal ideologies and financial reporting quality. We use Federal Elections Commission data to develop three proxies for managers’ personal ideologies and test their relations with two financial reporting quality metrics: discretionary accruals and financial statement restatements. We find that both the absolute value of discretionary accruals and the probability of restatement decrease in the degree to which firms’ managers have conservative ideologies. These results are robust in the post-SOX period, to controls for potential self-selection bias, to alternative measures of both ideology and financial reporting quality, and to controls for firm political sensitivity, lobbying activity, governance, operational complexity and auditor strength. Our findings contribute to a growing literature demonstrating that business outcomes are partially explained by manager-specific factors including managers’ personal views and priorities.

Keywords: Earnings quality; Management ideology; Political contributions; Restatements; Earnings management; Financial reporting quality (search for similar items in EconPapers)
JEL-codes: M41 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11156-018-0718-5

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