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Business Education of CEO-CFO and Annual Report Readability

Author

Listed:
  • Ling Tuo

    (Strome College of Business, Old Dominion University)

  • Yu (Tony) Zhang

    (College of Business and Information Technology, Lawrence Technological University)

  • Zhenfeng Liu

    (School of Management, University of Michigan ¨C Flint)

  • Ruixue Du

    (School of Business and Economics, University of Wisconsin ¨C Stevens Point)

Abstract

Financial report readability captures the transparency and effectiveness of information communicated by firms¡¯ executives. It¡¯s interesting to investigate whether business knowledge, cognitive preferences, and professional ethics taught by a business education will shape the CEO/ CFO¡¯s thinking in determining words, languages, paragraphs, and contents presented in financial reports when the self-interested CEO/CFO tends to influence the interpretation of financial information users. Using a sample of S&P 1500 CEOs and CFOs, we find that the CEO (CFO) with a business degree is associated with better (worse) readability of annual reports and the positive (negative) relation is strengthened (moderated) by internal corporate governance and external analyst following. Furthermore, we explore the interaction between CEO¡¯s and CFO¡¯s education background and provide additional evidence for the conflict of interest between CEOs and CFOs on financial reporting strategies. Our findings suggest business education, although has no direct impact on financial reporting quality, is beneficial to CEOs for strengthening their monitoring role in firm¡¯s financial reporting activities. Also, we consider that the ethical topics in business education can enhance financial executives¡¯ awareness to conduct practice under the ethical codes. Our study has implications for academic literature, business education, industry practitioners, and standards setting.

Suggested Citation

  • Ling Tuo & Yu (Tony) Zhang & Zhenfeng Liu & Ruixue Du, 2019. "Business Education of CEO-CFO and Annual Report Readability," Review of Economics & Finance, Better Advances Press, Canada, vol. 17, pages 16-34, August.
    • Handle: RePEc:bap:journl:190302
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    References listed on IDEAS

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    More about this item

    Keywords

    Readability of 10-Ks; Business education; Executives¡¯ educational background; Financial reporting; Corporate governance;
    All these keywords.

    JEL classification:

    • A20 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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