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Management’s personal ideology and financial reporting quality

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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)

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.

Suggested Citation

  • Matthew Notbohm & Katherine Campbell & Adam R. Smedema & Tianming Zhang, 2019. "Management’s personal ideology and financial reporting quality," Review of Quantitative Finance and Accounting, Springer, vol. 52(2), pages 521-571, February.
    • Handle: RePEc:kap:rqfnac:v:52:y:2019:i:2:d:10.1007_s11156-018-0718-5
    DOI: 10.1007/s11156-018-0718-5
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    1. Patrick Velte, 2023. "The link between corporate governance and corporate financial misconduct. A review of archival studies and implications for future research," Management Review Quarterly, Springer, vol. 73(1), pages 353-411, February.
    2. El’fred Boo & Terence Ng & Premila Gowri Shankar, 2021. "Effects of Advice on Auditor Whistleblowing Propensity: Do Advice Source and Advisor Reassurance Matter?," Journal of Business Ethics, Springer, vol. 174(2), pages 387-402, November.
    3. Katherine Campbell & Cullen F. Goenner & Matthew Notbohm & Adam Smedema, 2022. "Political ideology and CEO performance under crisis," Review of Quantitative Finance and Accounting, Springer, vol. 58(1), pages 329-359, January.

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    Keywords

    Earnings quality; Management ideology; Political contributions; Restatements; Earnings management; Financial reporting quality;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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