The Effect of Managerial Adverse Experience on Financial Reporting
The Accounting Review · 2023 · Volume 98 · Issue 3
Abstract
We identify executives who have experienced significant accounting-related adverse events during their careers as a powerful setting to examine the extent to which prior professional experience can influence subsequent financial reporting policies. We find that firms led by senior financial executives who have experienced accounting-related adverse events during their careers exhibit greater unconditional accounting conservatism, a lower likelihood of experiencing future accounting-related adverse events, and less positive abnormal discretionary accruals. This effect tends to be stronger when the experience is more frequent, recent, severe, or proximate. Overall, our results reveal a meaningful relationship between managers’ professional experience and accounting policies. Data Availability:All data used in this study are obtained from publicly available sources. JEL Classifications:G40; M40; M41.
Keywords
accounting policies, adverse experience, conservatism, executives, experience, expertise, financial executives, financial reporting, managers
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