Managerial academic experience and tone management: evidence from China

ABSTRACT

We examine the effect of managerial academic experience on tone management in the corporate annual report. We find that managerial academic experience reduces the likelihood of upward tone management. Furthermore, we find that the impact of academic experience on tone management is intensified when managers have stronger incentives to upwardly manage financial reporting tone and when the outside monitoring environment is weaker. The results hold under a variety of robustness tests. This study enriches the relevant research on executive characteristics and tone management, and the conclusion of this paper provides practical implications to improve the quality of information disclosure.

KEYWORDS:

• academic experience
• tone management
• information disclosure

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. We find consistent results of using the raw number of managers with academic experience (Acaraw) as an alternative measure of managerial academic experience.

2. Alternatively, our results could be driven by managerial academic experience intensifying downward tone management. To rule out the alternative explanation, we divided tone management (Atone) into quintiles. The middle quintile (quintile 3) represents firms without tone management. The top (bottom) quintiles that Atone are higher (lower) than the middle quintile represent firms that upwardly (downwardly) manage their tones. We define an indicator variable Upward (Downward) that equals one for firms in the top (bottom) quintiles and equals zero for firms in the middle quintile. We run logit regressions in the samples of top and middle quintiles (quintiles 1, 2, and 3) as well as middle and bottom quintiles (quintiles 3, 4, and 5), respectively. We find that the coefficients of Aca and Acanum are negative and significant in the sample of top and middle quintiles, but the coefficients of Aca and Acanum are positive and insignificant in the sample of bottom and middle quintiles, thus ruling out the alternative explanation that managerial academic experience intensifies downward tone management. We thank the anonymous reviewer for the suggestion.

3. Our results are also robust by using the two methods of two-stage regression developed by Chen, Hribar, and Melessa (2018).

Additional information

Funding

We acknowledge the research support from the fund for building world-class universities (disciplines) of Renmin University of China, project No. KYGJC2021010.