Imprinting Effect of Economic Conditions on CFOs’ Judgment and Accounting Information Quality

Abstract

In this paper, we concern about whether the economic conditions of the year when CFOs start their career will affect accounting information quality. Taking A-share listed companies in Shenzhen and Shanghai stock markets from 1999 to 2015 as the sample, we find that the companies with CFOs who started their career during economic downturns take less earnings management. We conduct a series of robustness tests, including: （1） separating upward earnings management and downward earnings management; （2） introducing the Heckman two-stage model, PSM sample and firm fixed effect; （3） using alternative variables for accounting information quality and economic conditions. The results are robust through the above tests. Further analysis finds that the rapidly changing economic conditions will gradually adjust the initial behavior characteristics of CFOs, so the CFOs who started their career earlier are less affected by the economic conditions at that time. In addition, the nature of company ownership, marketization process and share-trading reform will affect this relationship. Specifically, the variance in the two groups’ earnings management is significant before the share reform, for the state-owned enterprises, and in the low-marketized area.Our paper provides a new perspective to observe CFOs’ characteristics based on the imprinting effect of the economic conditions of the year when CFOs start their career and sheds lights on the determinants of accounting information quality.