It Is Not Only What You Know, It Is Also Who You Know: CEO Network Connections and Financial Reporting Quality

Author:

Bhandari Avishek1,Mammadov Babak,Shelton Austin,Thevenot Maya2

Affiliation:

1. University of Wisconsin–Whitewater

2. Florida Atlantic University

Abstract

SUMMARY The study investigates whether CEOs' external connections with other executives and directors are associated with enhanced financial reporting quality. We find that CEOs with larger connections have lower discretionary accruals and are less likely to have financial restatements and material internal control weaknesses. Further results show that larger social networks are associated with higher audit quality, which translates into higher audit fees. The results are robust to a variety of alternative specifications, including controls for endogeneity, and are consistent with well-connected CEOs providing economic benefits to their firms, rather than using their position to extract rents at the expense of shareholders.

Publisher

American Accounting Association

Subject

Economics and Econometrics,Finance,Accounting

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