Foreign Experienced CEOs’ and Financial Statement Comparability

Figures & data

Table 1. Distribution of FCEO.

This table presents the sample distribution. Panel A presents the distribution of FCEOs and FCEOEXP. Panels B and C report the univariate analysis between dependent and independent variables, respectively, and Panel D provides the results of summary statistics. See Appendix A for variables definitions.
Year		N		FCEO		FCEOEXP
2005		695		9		0
2006		631		7		0
2007		710		8		0
2008		799		25		2
2009		853		29		5
2010		861		36		6
2011		980		42		7
2012		1,187		48		8
2013		1,168		71		9
2014		1,265		95		10
2015		1,360		120		11
2016		1,464		131		12
2017		1,581		141		13
2018		1,687		160		16
Total		15,241		922		99
Panel B: Univariate analysis of FCEO and comparability
	FCEO = 1			FCEO = 0
Variables	Mean	SD	N	Mean	SD	N	t-test
FSC4	−0.345	0.868	922	−0.534	1.353	14,319	−4.62***
FSC10	−0.494	1.065	922	−0.740	1.592	14,319	−5.11***
FSCInd	−1.258	1.556	922	−1.675	2.079	14,319	−6.58***
Panel C: Univariate analysis of FCEOEXP and comparability
	FCEOEXP = 1			FCEOEXP = 0
Variables	Mean	SD	N	Mean	SD	N	t-test
FSC4	−0.754	2.052	99	−0.520	1.322	15,142	−1.90*
FSC10	−0.991	2.379	99	−0.723	1.558	15,142	−1.84*
FSCInd	−1.909	2.979	99	−1.646	2.045	15,142	−1.89*
Panel D: Descriptive Statistics
Variables	Obs	Mean	SD	25%	Median	75%
FSC4	15241	−0.648	1.474	−0.549	−0.268	−0.143
FSC10	15241	−0.903	1.736	−0.848	−0.433	−0.230
FSCInd	15241	−2.032	2.207	−2.214	−1.492	−1.002
FCEO	15241	0.060	0.219	0.000	0.000	0.000
FCEOEXP	15241	0.006	0.071	0.000	0.000	0.000
FCEOEXP_Non	15241	0.054	0.208	0.000	0.000	0.000
SIZE	15241	22.104	1.219	21.253	21.976	22.827
MTB	15241	2.662	2.031	1.395	1.995	3.111
LEV	15241	0.472	0.202	0.320	0.480	0.625
ROA	15241	0.035	0.057	0.012	0.031	0.059
OCF	15241	0.047	0.074	0.006	0.045	0.088
OCFV	15241	0.052	0.040	0.024	0.040	0.066
SALE	15241	0.305	0.943	−0.052	0.125	0.351
SALEV	15241	1.74e+09	1.22e+10	1.37e+08	3.49e+08	9.46e+08
AQ	15241	0.250	1.375	0.052	0.117	0.231
RETV	15241	−0.004	1.732	−0.663	0.120	0.838
BIND	15241	0.397	0.083	0.333	0.375	0.444
BSIZE	15241	9.410	2.549	8.000	9.000	11.000
GCEO	15241	0.052	0.222	0.000	0.000	0.000
DUAL	15241	0.196	0.397	0.000	0.000	0.000
BIG4	15241	0.060	0.238	0.000	0.000	0.000
AGE	15241	3.875	0.133	3.784	3.891	3.970
TOP	15241	0.191	0.393	0.000	0.000	0.000

Table 2. Foreign experienced CEOs and comparability.

	(1)	(2)	(3)	(4)	(5)	(6)
	Hypothesis 1			Hypothesis 2
Variables	FSC4	FSC10	FSCInd	FSC4	FSC10	FSCInd
FCEOs	0.092**	0.104**	0.113**
	(2.474)	(2.371)	(1.979)
FCEOEXP				0.258***	0.354***	0.686***
				(6.483)	(7.595)	(11.379)
FCEOEXP_Non				0.131***	0.172***	0.279***
				(3.306)	(3.631)	(4.399)
SIZE	0.121***	0.131***	0.122***	0.110***	0.133***	0.197***
	(6.829)	(6.325)	(4.813)	(7.478)	(7.772)	(9.130)
MTB	−0.003***	−0.003***	−0.003***	−0.002***	−0.003***	−0.003***
	(−3.352)	(−3.380)	(−3.366)	(−3.824)	(−3.973)	(−3.741)
LEV	−0.944***	−1.029***	−1.115***	−1.095***	−1.220***	−1.696***
	(−4.541)	(−4.286)	(−3.824)	(−6.026)	(−5.909)	(−6.850)
ROA	−0.025***	−0.030***	−0.032***	−3.793***	−4.342***	−4.676***
	(−2.785)	(−2.833)	(−2.775)	(−10.069)	(−9.881)	(−8.842)
OCF	1.181***	1.235***	1.073***	0.251	0.481*	0.976***
	(5.049)	(4.551)	(3.239)	(1.072)	(1.759)	(2.906)
OCFV	−2.227**	−2.707**	−3.771**	−2.739**	−3.399**	−4.856*
	(−1.986)	(−1.992)	(−1.987)	(−1.996)	(−2.018)	(−1.960)
SALE	−0.044**	−0.046*	−0.051*	−0.060***	−0.066***	−0.081***
	(−2.102)	(−1.941)	(−1.792)	(−3.745)	(−3.623)	(−3.662)
SALEV	−0.000**	−0.000**	−0.000***	−0.000	−0.000	−0.000
	(−2.501)	(−2.260)	(−2.629)	(−1.624)	(−1.592)	(−0.290)
AQ	0.031**	0.036**	0.040**	0.024***	0.027***	0.029***
	(2.381)	(2.371)	(2.103)	(3.609)	(3.652)	(2.937)
RETV	−0.001	−0.002	−0.004	−0.003	−0.003	−0.003
	(−0.193)	(−0.326)	(−0.408)	(−0.507)	(−0.419)	(−0.276)
BIND	0.095	0.123	0.336	−0.075	−0.121	−0.679***
	(0.626)	(0.698)	(1.541)	(−0.560)	(−0.773)	(−3.437)
DUAL	−0.019	−0.025	−0.089*	0.045	0.068**	0.079*
	(−0.579)	(−0.656)	(−1.907)	(1.545)	(1.981)	(1.794)
BSIZE	−0.011**	−0.015**	−0.016**	−0.008	−0.011*	−0.007
	(−2.045)	(−2.337)	(−2.086)	(−1.497)	(−1.930)	(−0.928)
BIG4	−0.228***	−0.275***	−0.390***	−0.325***	−0.398***	−0.599***
	(−4.123)	(−4.265)	(−4.800)	(−5.104)	(−5.387)	(−6.442)
GCEO	−0.097*	−0.096	−0.149*	−0.067	−0.054	−0.104
	(−1.701)	(−1.461)	(−1.846)	(−1.079)	(−0.745)	(−1.135)
AGE	−0.141	−0.171	−0.153	0.260***	0.368***	0.621***
	(−1.457)	(−1.519)	(−1.095)	(2.683)	(3.237)	(4.268)
TOP	−0.024	−0.033	−0.018	−0.159***	−0.222***	−0.331***
	(−0.755)	(−0.880)	(−0.373)	(−4.586)	(−5.368)	(−6.160)
Year	Yes	Yes	Yes	Yes	Yes	Yes
Industry	Yes	Yes	Yes	Yes	Yes	Yes
Constant	−3.397***	−3.967***	−4.850***	−3.961***	−5.087***	−8.299***
	(−5.981)	(−5.924)	(−5.703)	(−7.576)	(−8.138)	(−9.997)
R^2	0.094	0.114	0.154	0.088	0.089	0.088
N	15,241	15,241	15,241	15,241	15,241	15,241

This table presents OLS regression results with robust standard errors clustered at firm. The t-values are reported in parenthesis. ^{***, **}, and *, denote p < 1%, 5%, and 10%. Refer to Appendix A for variable definitions.

Table 3. Robustness checks.

Panel A: Alternative proxy of comparability
	Hypothesis 1			Hypothesis 2
Variable	FSC4_ADJ	FSC10_ADJ	FSCInd_ADJ	FSC4_ADJ		FSC10_ADJ		FSCInd_ADJ
FCEO	0.113**	0.122**	0.119*
	(2.214)	(2.195)	(1.865)
FCEOEXP				0.125**		0.141**		0.162***
				(2.299)		(2.441)		(2.598)
FCEOEXP_Non				0.101*		0.109*		0.115*
				(1.854)		(1.843)		(1.685)
Controls	Yes	Yes	Yes	Yes		Yes		Yes
Year	Yes	Yes	Yes	Yes		Yes		Yes
Industry	Yes	Yes	Yes	Yes		Yes		Yes
Constant	−4.910***	−5.375***	−6.133***	−3.286***		−3.534***		−4.580***
	(−6.631)	(−6.647)	(−6.578)	(−4.851)		(−4.731)		(−5.070)
R^2	0.109	0.123	0.154	0.116		0.126		0.163
N	15,241	15,241	15,241	15,241		15,241		15,241
Panel B: Alternative proxy of comparability
	Hypothesis 1			Hypothesis 2
Variable	FSC4_Lag	FSC10_Lag	FSCInd_Lag	FSC4_Lag	FSC10_Lag		FSCInd_Lag
FCEO	0.111**	0.122**	0.119*
	(2.217)	(2.207)	(1.829)
FCEOEXP				0.360***	0.451***		0.778***
				(4.275)	(4.622)		(5.584)
FCEOEXP_Non				0.160**	0.197**		0.288**
				(2.673)	(2.767)		(2.858)
Controls	Yes	Yes	Yes	Yes	Yes		Yes
Year	Yes	Yes	Yes	Yes	Yes		Yes
Industry	Yes	Yes	Yes	Yes	Yes		Yes
Constant	−4.989***	−5.489***	−6.330***	−5.597***	−6.630***		−9.845***
	(−6.566)	(−6.493)	(−6.396)	(−5.620)	(−5.146)		(−4.307)
R^2	0.096	0.111	0.149	0.093	0.095		0.094
N	15,241	15,241	15,241	15,241	15,241		15,241
Panel C: Fixed effect model
	Hypothesis 1			Hypothesis 2
Variable	FSC4	FSC10	FSCInd	FSC4	FSC10		FSCInd
FCEO	0.221***	0.232***	0.217**
	(3.487)	(3.179)	(2.419)
FCEOEXP				0.157***	0.152**		0.625***
				(4.572)	(2.228)		(7.442)
FCEOEXP_Non				0.018	0.022		−0.060
				(0.242)	(0.164)		(−0.348)
Controls	Yes	Yes	Yes	Yes	Yes		Yes
Year fixed effect	Yes	Yes	Yes	Yes	Yes		Yes
Firm fixed effect	Yes	Yes	Yes	Yes	Yes		Yes
Constant	−8.510***	−11.585***	−13.115***	−23.937**	−12.482***		−22.810***
	(−13.152)	(−20.438)	(−14.342)	(−2.403)	(−8.888)		(−7.172)
R^2	0.065	0.073	0.144	0.059	0.073		0.127
N	15,241	15,241	15,073	15,241	15,241		15,241
Panel D: Lag of independent variables
	Hypothesis 1			Hypothesis 2
Variable	FSC4	FSC10	FSCInd	FSC4	FSC10		FSCInd
LFCEO	0.094**	0.111**	0.103*
	(2.299)	(2.316)	(1.695)
LFCEOEXP				0.362***	0.473***		0.811***
				(10.488)	(11.482)		(13.718)
LFCEOEXP_Non				0.076*	0.096*		0.140**
				(1.762)	(1.869)		(1.971)
Controls	Yes	Yes	Yes	Yes	Yes		Yes
Year	Yes	Yes	Yes	Yes	Yes		Yes
Industry	Yes	Yes	Yes	Yes	Yes		Yes
Constant	−3.356***	−3.856***	−4.703***	−3.292***	−4.100***		−6.515***
	(−5.827)	(−5.685)	(−5.498)	(−6.861)	(−7.234)		(−9.041)
R^2	0.092	0.113	0.158	0.087	0.088		0.089
N	13,155	13,155	13,155	13,155	13,155		13,155
Panel E: GMM
	Hypothesis 1			Hypothesis 2
Variable	FSC4	FSC10	FSCInd	FSC4	FSC10		FSCInd
FCEO	0.101***	0.097***	0.191***
	(2.993)	(2.925)	(3.24)
FCEOEXP				0.079***	0.127***		0.242***
				(6.257)	(8.227)		(10.233)
FCEOEXP_Non				0.055*	0.066**		0.118**
				(1.917)	(2.104)		(2.078)
LFSC4	0.973***			0.826***
	(55.490)			(58.886)
LFSC10		1.020***			0.807***
		(61.407)			(67.645)
LFSCInd			1.093***				1.006***
			(93.490)				(117.189)
Controls	Yes	Yes	Yes	Yes	Yes		Yes
Year	Yes	Yes	Yes	Yes	Yes		Yes
Industry	Yes	Yes	Yes	Yes	Yes		Yes
Constant	17.363	4.761	−2.930***	−1.430***	−1.832***		−2.359***
	(1.505)	(0.413)	(−6.741)	(−5.364)	(−5.835)		(−6.243)
Diagnostic Tests
Ar(1)	−7.42***	−7.40***	−7.81***	−7.32***	−7.03***		−7.75***
Ar(2)	1.25	0.65	−0.56	1.36	0.66		−0.59
J-Stats	41.45	44.62	61.57	68.12	72.12		74.81
N	13,296	13,296	13,296	13,296	13,296		13,296
Panel F: 2SLS
	Hypothesis 1			Hypothesis 2
Variable	FSC4	FSC10	FSCInd	FSC4	FSC10		FSCInd
FCEO	0.822**	1.090***	1.744***
	(2.463)	(2.781)	(3.392)
FCEOEXP				9.076*	12.530*		14.511*
				(1.737)	(1.733)		(1.919)
FCEOEXP_Non				0.084**	0.099**		0.101
				(2.077)	(2.041)		(1.524)
Controls	Yes	Yes	Yes	Yes	Yes		Yes
Year	Yes	Yes	Yes	Yes	Yes		Yes
Industry	Yes	Yes	Yes	Yes	Yes		Yes
	−3.594***	−4.232***	−5.289***	−2.627**	−3.262*		−6.638***
	(−6.255)	(−6.255)	(−6.180)	(−2.061)	(−1.889)		(−3.473)
R^2	0.094	0.114	0.154	0.045	0.047		0.053
Wald Chi^2/ F	4061.86	3952.30	4033.89	4249.08	3805.50		3764.86
Prob > F	0.000	0.000	0.000	0.000	0.000		0.000
N	15,241	15,241	15,241	15,241	15,241		15,241
Panel G: Propensity score matching method
Variable	Firm-year obs. with FCEOs (N = 776)		Firm-year obs. without FCEOs (N = 776)		Differences		t-stat
FSC4	−0.413		−0.556		0.142***		2.38
FSC10	−0.595		−0.788		0.192***		2.68
FSCInd	−1.571		−1.854		0.283***		3.01

Notes: Panel A and B report the alternative measures of comparability. Panel C presents the results of FEM. Panel D reports the results of lag variables. Panel E reports the results of GMM. Panel F reports the results of 2SLS. And Panel G reports the results of PSM. The t-values are reported in parenthesis. ^{***, **}, and *, denote p < 1%, 5%, and 10%. Refer to Appendix A for variable definitions.

Table 4. Additional analysis.

Panel A: Moderating effect of EPU
	Hypothesis 1				Hypothesis 2
Variable	FSC4	FSC10	FSCInd		FSC4	FSC10	FSCInd
FCEO	0.228***	0.293***	0.405***
	(5.069)	(4.9714)	(3.5109)
FCEOEXP					0.310***	0.443***	0.827***
					(4.481)	(4.993)	(5.245)
FCEOEXP_Non					0.211***	0.268***	0.364***
					(4.315)	(4.321)	(2.850)
EPU	−0.001***	−0.001***	−0.002***		−0.001***	−0.001***	−0.002***
	(−5.622)	(−5.647)	(−7.085)		(−5.051)	(−5.128)	(−20.013)
FCEO*EPU	−0.000**	−0.000**	−0.001*
	(−3.008)	(−2.799)	(−1.945)
FCEOEXP*EPU					−0.000**	−0.000**	−0.001***
					(−2.471)	(−2.182)	(−3.569)
FCEOEXP_Non*EPU					−0.000*	−0.000**	−0.000
					(−2.015)	(−2.344)	(−1.290)
Controls	Yes	Yes	Yes		Yes	Yes	Yes
Year	Yes	Yes	Yes		Yes	Yes	Yes
Industry	Yes	Yes	Yes		Yes	Yes	Yes
Constant	−4.185***	−5.354***	−8.986***		−4.170***	−5.330***	−8.268***
	(−9.528)	(−8.549)	(−6.651)		(−9.719)	(−8.722)	(−6.795)
R^2	0.0489	0.0538	0.1095		0.049	0.055	0.077
N	15,241	15,241	15,241		15,241	15,241	15,241
Panel B: CEOs working versus studying experiences
Variable	FSC4	FSC10	FSCInd		FSC4	FSC10	FSCInd
FCEO_Work	0.164***	0.236***	0.410***
	(3.152)	(3.871)	(5.153)
FCEO_Study					0.104	0.157	0.007
					(1.333)	(1.587)	(0.057)
Controls	Yes	Yes	Yes		Yes	Yes	Yes
Year	Yes	Yes	Yes		Yes	Yes	Yes
Industry	Yes	Yes	Yes		Yes	Yes	Yes
Constant	−4.747***	−6.182***	−10.011***		−2.959***	−3.469***	−4.643***
	(−9.384)	(−10.142)	(−12.227)		(−6.042)	(−5.963)	(−6.212)
R^2	0.048	0.051	0.057		0.063	0.075	0.15
N	15,241	15,241	15,241		15,241	15,241	15,241
Panel C: Channel Analysis
	Hypothesis 1				Hypothesis 2
Variable	FSC4	FRQ	FSC4		FSC4	FRQ	FSC4
RCEOs	0.093**	0.012**	0.104*
	(2.510)	(2.043)	(1.922)
FRQ			0.261***				0.260***
			(2.713)				(2.671)
FCEOEXP					0.105**	0.018**	0.095**
					(2.544)	(2.546)	(2.232)
FCEOEXP_Non					0.081**	0.010*	0.094**
					(1.976)	(1.797)	(2.512)
Controls	Yes	Yes	Yes		Yes	Yes	Yes
Year	Yes	Yes	Yes		Yes	Yes	Yes
Industry	Yes	Yes	Yes		Yes	Yes	Yes
Constant	−3.373***	0.543	−3.234***		−3.381***	−0.046	−3.241***
	(−5.931)	(0.520)	(−3.880)		(−5.940)	(−0.379)	(−5.962)
R^2	0.093	0.050	0.093		0.093	0.065	0.094
N	15,241	15,046	15,046		15,241	15,046	15,046
Sobel test (p_value)			1.656 (0.099)				1.852(0.064)

Notes: Panel A reports the results of the moderating effect of economic policy uncertainty on the relationship between returnee CEOs and comparability. Panel B reports the results of the effect returnee CEOs with working and studying experiences on comparability. Panel C reports the mediating role financial reporting quality on comparability. The t-values are reported in parenthesis. ^{***, **}, and *, denote p < 1%, 5%, and 10%. Refer to Appendix A for variable definitions.

Table

Variable	Definition
Dependent variables
FSC4	FSC4 is the mean of the four highest comparability scores of firm “$i$” in period “$t$” in the same industry.
FSC10	FSC10 is the mean of the comparability scores of the top 10 firm within the industry.
FSCInd	FSCInd is the median of all of the comparability scores of firm “$i$” in the industry for period “$t$”.
Independent variables
FCEO	Equals 1 if the CEO has foreign working or studying experiences, otherwise 0.
FCEOEXP	Equals 1 if the FCEO has accounting and financial experience, otherwise 0.
FCEOEXP_Non	Equals 1 for the FCEO with no accounting and financial experience, otherwise 0.
Control variables
SIZE	Natural log of total assets.
MTB	Market to book value of equity.
LEV	Total liability over total assets.
ROA	Net income scaled by total assets.
OCF	Operating cash flows deflated by total assets.
OCFV	Standard deviation of quarterly operating cash flows over the preceding year.
SALE	Annual sales growth
SALEV	Standard deviation of quarterly sales over the preceding year.
AQ	Absolute value of discretionary accruals calculated using the Dechow and Dichev (2002) model.
RETV	Standard deviation of daily stock returns over the year.
BIND	Percentage of independent directors
DUAL	Equals to 1 if the CEOs also serves as board chair, otherwise 0.
BSIZE	Total number of board members.
BIG4	Equals 1 if the auditor is from one of the Big 4 firms (auditing), otherwise 0.
GCEO	Equals 1 if the CEO is female, otherwise 0.
AGE	Natural log of CEOs age.
TOP	Percentage of shares held by largest shareholders.
Variables used in additional analyses
EPU	News-based index: EPU index is developed by Baker, Bloom, and Davis (2016). It is calculated on monthly basis. For annual values, the monthly data is converted data by giving the same weight to every month, and then deflated by 100.
FCEO_Work	Equals 1 if CEO has foreign work experience, otherwise 0.
FCEO_Study	Equals 1 if CEO has foreign study experience, otherwise 0.
FRQ	Absolute value of discretionary accruals multiplied by −1 calculated using the Kothari, Leone, and Wasley (2005)

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