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Is knowledge powerful? Evidence from financial education and earnings quality

Author

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  • Sun, Hongyan
  • Yuen, Desmond C.Y.
  • Zhang, Jiahang
  • Zhang, Xu

Abstract

Previous studies emphasize the importance of investor legal protection on financial reporting quality. We argue that investors’ awareness of their legal rights and understanding of the financial products play complementary roles. Financially well-educated investors are more likely to be able to understand investment-related information and less likely to be tricked, hence can pressure managers to eschew misappropriate behavior. This paper explores the role of investor financial education as a corporate governance mechanism in the context of earnings quality. Using data from 43 countries during the sample period of 1994–2012, we find that earnings quality is higher in countries with better financial education after controlling for various institutional environments. Interestingly, the positive effect of financial education on earnings quality exists only in countries with stronger investor legal protection, indicating a complementary role of financial education. Our study provides evidence on the role of financial education in investor protection.

Suggested Citation

  • Sun, Hongyan & Yuen, Desmond C.Y. & Zhang, Jiahang & Zhang, Xu, 2020. "Is knowledge powerful? Evidence from financial education and earnings quality," Research in International Business and Finance, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:riibaf:v:52:y:2020:i:c:s0275531919309304
    DOI: 10.1016/j.ribaf.2019.101179
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    More about this item

    Keywords

    Financial; Education; Earnings quality; Investor protection;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • K20 - Law and Economics - - Regulation and Business Law - - - General

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