Does chairman education matter to accounting quality?

Abstract

We examine how chairman education influences income-smoothing decision-making in Chinese firms, a context where chairmen hold the most power in their firms. We use a dataset of firms listed in the Shanghai and Shenzhen stock exchanges during the 2001–2017 period and employ the fixed-effect model to account for firm heterogeneity, which may confound our estimation results. We find that chairmen with postgraduate degrees in business-related fields (e.g., business management, finance, accounting, or economics) tend to encourage income smoothing to improve earning informativeness, while those with undergraduate degrees and lower do not. Further analyses suggest that the chair's gender, the chair's compensation, and the presence of state ownership do not influence the newfound relationship. However, analyst coverage plays a role as the mitigating factor that reduces the positive impact of academic chairmen on income smoothing. The findings of this study imply that Chinese firms should require chairmen to have postgraduate qualifications or equivalents in business-related fields. Business schools should pay attention to accounting education to hone students' understanding of earning information. Our findings add new knowledge and emphasize the importance of higher education in forming corporate strategy and decision-making in the unique economy of China.