This thesis consists of three essays organized into three chapters. The three essays are related in that each analyzes the effect of a unique firm characteristic on financial reporting quality (FRQ). In the first essay, we consider how the gender of the CFO and the gender diversity of the board of directors affect the likelihood of restatements that occur when financial statements contain material errors. We demonstrate evidence that FRQ is improved via reduced restatement likelihood when the CFO is a woman and when more women serve on the board of directors. We also find that women on the board of directors are more effective at reducing restatement likelihood when the CFO is a woman. And we find that while female CFOs reduce restatement likelihood generally, they have no measurable effect when the board of directors is all male. We discuss the theoretical drivers of these findings. In the second essay, we expand our analysis of executive characteristics, considering how CEO age affects FRQ at a time of increasing CEO age in the United States. We find that financial statement irregularities are more prevalent when CEOs are older. This holds when pre-SOX observations are included, when retirement-aged CEO observations are excluded, when performance-based CEO compensation is controlled for, and when an instrumental variable approach is used. We find less robust evidence that abnormal decreases in discretionary expenses are more prevalent when CEOs are older as well. We also find some evidence that abnormal production costs are more prevalent when CEOs are younger. We find that clawback provisions may eliminate any effect of CEO age on FRQ. We posit that these results are driven by career concerns that evolve as CEOs age. In the third essay, we move to ownership structure. We take a comprehensive approach, considering how institutional investor ownership affects the prevalence of earnings surprises and earnings management. We find evidence that institutional investor ownership has a positive effect on earnings surprise likelihood overall, but that the relation is dynamic and heavily context-dependent with evidence of nonlinearity as well. We find evidence that IO affects accruals-based earnings management positively and real activities earnings management negatively overall. And, we find that the passage of the Sarbanes–Oxley Act plays an important role in the IO-earnings management relation.
Determinants of financial reporting quality: Three essays exploring the role of managers, directors, and ownership structure
Davis , J. G. (Author). 10 Jun 2022
Student thesis: Doctoral thesis
Student thesis: Doctoral thesis