Military-experienced senior executives, corporate earnings quality and firm value
Abstract
Purpose
Accounting scandals and earnings management problems at large firms such as Global Crossing and Enron have resulted in lots of wealth loss not only to corporate investors but also led tremendous damage to societies. Hence, policymakers and academic researchers have started to explore mechanisms to prevent improprieties in financial reporting and further enhance firm value. Using data from United States (US)-listed companies between 2000 and 2018, this article explores the effect of ex-military executives on earnings quality, the role of financial analysts in their interplay and the firm value implication of earnings quality driven by ex-military executives.
Design/methodology/approach
This study employs a firm fixed-effects model to validate the main conjecture and adopts the weighted least squares, Granger causality analysis, instrumental variable approach, propensity score matching, entropy balancing approach and dynamic system Generalized Method of Moments (GMM) estimator to address robustness and endogeneity issues.
Findings
Authors reveal that companies run by ex-military senior executives exhibit lower levels of accruals-based and real earnings management than those without. The effect of management military leadership on constraining earnings management is more prominent for companies with low analyst coverage, suggesting that the military experience of executives could be a substitute for external monitoring. Authors also find that these ethical managers alleviate the negative impact of earnings management on firm value and that companies managed by these managers exhibit higher firm performance.
Practical implications
This study highlights the importance of the intrinsic motivation behind the effect of military experience on senior managers' personalities and offers essential stakeholder-related implications regarding the effect of military experience. The military experience of senior managers helps facilitate the attainment of broader corporate governance and economic objectives.
Originality/value
This article adds new insights to the literature on the role of managerial military experience in decision-making processes, financial reporting outcomes and firm performance by employing the upper echelons and imprinting theoretical perspectives.
Keywords
Acknowledgements
The authors would like to thank Professor Bruce Vanstone, Professor Tom Smith, and two anonymous reviewers for their constructive comments. Also, the authors are grateful to the personal research allowance and editing support provided by Queen Mary University of London. Since the acceptance of this article, the following author(s) have updated their affiliations: Xinrui Liu, a Lecturer in Entrepreneurship and Innovation, is now at the Greenwich Business School, University of Greenwich, London, UK.
Citation
Li, Z., Liu, X. and Wang, B. (2023), "Military-experienced senior executives, corporate earnings quality and firm value", Journal of Accounting Literature, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JAL-08-2022-0089
Publisher
:Emerald Publishing Limited
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