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Management’s personal ideology and financial reporting quality

  • Matthew Notbohm
  • Katherine Campbell
  • Adam R. Smedema
  • Tianming Zhang
Original Research

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 

JEL Classification

M410 

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Accountancy DepartmentUniversity of North DakotaGrand ForksUSA
  2. 2.Finance, Investment & BankingWisconsin School of Business at the University of Wisconsin-MadisonMadisonUSA
  3. 3.Department of AccountingFlorida State UniversityTallahasseeUSA

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