Can the academic experience of senior leadership improve corporate internal control quality?

In this paper, we investigate whether the academic experience of senior corporate leaders, often referred to as ‘top management’, impacts the quality of corporate internal control. Data collected from Shanghai and Shenzhen A-share listed firms in China demonstrate that senior leaders having academic experience can improve corporate internal control quality significantly. This study also finds that this impact varies with a firm’s agency costs and risk. In firms with higher agency cost (state-owned or larger firms) or higher risk, academic top managers play a more significant role in improving corporate internal control quality. The results are attributed to higher ethical standards, risk aversion and risk management abilities of senior executives given the perspectives awarded them during their academic experience. Further analysis shows that the differing roles of senior executives within such teams are quite distinct in how they improve internal control quality. Our findings contribute to the current internal control literature and have policy implications for evaluation of corporate internal control. It may also help enhance the processes in recruiting and selecting senior executives.