An Empirical Study On The Relationship Between Executives’Background Characteristics And Earnings Quality

As the core content of the financial reports, earnings information is very essential to investors, securities analysts, creditors and other stakeholders in economic decision-making. However, in recent years, financial scandals are everywhere in Chinese capital market, such as Guangdong " Kelon Electrical" in2006," HONTEX ", a Chinese textile company (0946.HK), in2010, Inner Mongolia Company " Gold Mining "," China’s forest" in2011. These deceptive behaviors in accountancy of Chinese listed companies send a strong signal that the earnings quality of Chinese capital market is very low. Due to the inherent nature of accounting and the discretion to calculate the surplus, as decision-makers, TMT have a strong motivation and great convenience to manage earnings, which will have an important impact on earnings quality.Based on the upper echelons theory, this article will study the relationship between executives’identity characteristics and earnings quality. This paper selects data from a share manufacturing companies listed in the Shanghai Stock Exchange from2007to2012as sample. This paper uses five TMT’s characteristics as explanatory variables:age, age heterogeneity, gender, term of service and education levels. In the paper, we use discretionary accruals and earnings persistence as proxies for the explained variable earnings quality and get consistent regression results. The regression results show the older of the managers, the lower values of the discretionary accruals, the more persistent earnings, the higher quality of earnings; the greater age heterogeneity, the higher values of the discretionary accruals, the less persistent earnings, the lower quality of earnings; the longer term of service, the lower values of the discretionary accruals, the more persistent earnings, the higher quality of earnings; the higher education level, the lower values of the discretionary accruals, the more persistent earnings, the higher quality of earnings. In addition, we find gender has no effect on earnings quality, but still worthy of attention, because many studies have shown that women performed better in moral standards and risk control, also bring fresh ideas. This article also uses ERC model to do robustness test, which shows the regression results robust.The empirical results of this study confirmed the applicability of upper echelons theory in Chinese capital market. This paper also put forward three suggestions: strengthening multi-party oversight, improving manager recruiting system, tightening up internal human resources management.