The team at the top matters!

Financial reporting quality is impacted by characteristics of a firm’s management team, according to new insights from Dana Zhang (Susquehanna University). The study examines accounting restatements as well as accrual and real earnings management to assess the characteristics of management teams and their influence. Results found that firms with top management teams with similar backgrounds, such as belonging to the same demographic, education levels as well as longer periods of time spent working together, resulted in an increased likelihood that financial statements would be misreported. Conversely, however, increased homogeneity in top management teams was found to have a positive impact related to restatements, which were less likely to occur when the management team’s composition had a lower quotient of audit committee members with long-tenure and independent executives.

Read more about “Top Management Team Characteristics and Financial Reporting Quality” by Dana Zhang, The Accounting Review (September 2019, Vol. 94, No. 5, pp. 349-375.) at aaapubs.

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CFRA aims to provide an effective contribution to scientific research and practice-oriented, pragmatic transfer of knowledge on financial reporting and auditing, as well as financial management more generally. In our Right on the money series, we share easy-to-understand summaries of emerging research in the field. For more information visit CFRA's Website and LinkedIn.

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