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CFO Ethnicity and Financial Reporting Conservatism

Huan Kuang ^a

Huimin Li ^b

Cody Lu ^c

Bo Xu ^d

^{^a}Bryant University, USA

^{^b}University of New Hampshire, USA

^{^c}University of Massachusetts Lowell, USA

^{^d}Harbin Institute of Technology, China

Advances in Accounting Behavioral Research Volume 28

ISBN: 978-1-83608-285-9, eISBN: 978-1-83608-284-2

Publication date: 28 October 2024

Abstract

Demographic characteristics such as race and ethnicity have long been shown to affect individuals' decision-making and can be associated with various behavioral outcomes. In this paper, we examine the association between the ethnicity of a chief financial officer (CFO) and financial reporting conservatism in a large sample of US public firms. We find that firms headed by CFOs of nonwhite ethnicities exhibit less conservative financial reporting than firms headed by white CFOs; however, this effect is attenuated for firms facing greater external scrutiny. Moreover, nonwhite CFOs in our sample recognize a higher level of discretionary accruals than white CFOs. Our study contributes to the literature on financial reporting and answers the call for more studies on top manager ethnicity effects. More importantly, our findings hold implications for both regulators and investors, given the prevalence and significance of diversity initiatives in today's globalized business environment.

Keywords

Acknowledgements

Acknowledgments

We appreciate the valuable comments of Elizabeth Gordon, Elaine Mauldin, and participants at the 2019 AAA Northeast Region Meeting, the 2020 AAA Diversity Section Meeting, and the 11th Japanese Accounting Review Conference. Xu acknowledges the funding support from Shenzhen Key Research Base of Humanities and Social Sciences (KP191001).

Citation

Kuang, H., Li, H., Lu, C. and Xu, B. (2024), "CFO Ethnicity and Financial Reporting Conservatism", Karim, K.E. (Ed.) Advances in Accounting Behavioral Research Volume 28 (Advances in Accounting Behavioural Research, Vol. 28), Emerald Publishing Limited, Leeds, pp. 151-181. https://doi.org/10.1108/S1475-148820240000028007

Publisher

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Emerald Publishing Limited