1. IntroductionIn this paper, we investigate whether the characteristics of Chairman of the board affect earnings management based on a large sample of Chinese listed companies.
Accounting information is of importance to firm’s decision making, debt contract and corporate governance. Therefore, the accounting quality has attracted attention of investors, creditors and scholars. For China, although it has experienced incredible levels of growth, structural change and other factors that have enhanced its transformation, it is a critical issue for Chinese stock market regulators to increase earnings quality and thus enhance market efficiency [3] .
Earning quality has received lots of attention. However, those researches keep keen concern on company characteristics, financial structure and external efforts in supervising and so on (Please refer to the review papers [2] [4] ). It is often ignored that the characteristics of top managers have significant influences on financial strategy and resource allocation.
Since Hambrick and Mason proposed upper echelons in 1984, top managers’ characteristics have become the research object of academic. Under Chinese corporate law, the Chairman is the legal representative of the company; therefore, this person is endowed with the highest level of authority in the firm and bears the overall responsibility for firm operation. In most cases, the Chairman is also the highest paid employee. For these reasons, some studies regard the position of Chairman as the top management post in a firm [5] .
Therefore, this study aims to provide empirical evidence and shed light on the relationship between characteristics of Chairman and earnings management by using a sample of Chinese firms that were publicly listed between 2005 and 2014. We find that companies with female, long-tenured, older and more educated Chairman have lower absolute discretionary accruals and lower real earnings management after controlling other factors that prior research has shown to be associated with earnings management.
The rest of the paper is organized as follows. Section 2 reviews the existing literature and develops testable hypotheses. Section 3 describes the research design, models, variable measures, and sample. Section 4 presents empirical evidence on whether Chairman’s characteristics affect earnings management. Section 5 concludes the study.
2. Literature Review and Hypothesis DevelopmentHambrick and Mason [6] originally proposed upper echelons theory. It researches the company group of senior executives. The basic idea is the cognitive base and value, and these qualities will affect the manager's actions and decisions, thereby affecting the company’s performance and organizational competitive behavior. Since the cognitive bases, values, and perception of upper level managers are inconvenient to measure, Hambrick and Mason [6] use observable managerial characteristics as indicators of impact and behaviors. In the paper, we choose gender, age, education and tenure that are the most represented factors to investigate whether those factors affect earnings management.
1) Gender
The female executives literature suggests that women tend to be less aggressive or more cautions in financial decision. For example, Riley and Chow [7] find that women are more risk averse than mean when making investment choices. Peng et al. [8] show that male managers are more apt to exhibit overconfidence in investment decisions when compared with female managers.
With regards to corporate governance, Adams and Ferreira [9] use a US firm’s sample and find that female directors have better attendance records than male director. In addition, gender-diverse boards allocated more effector to monitoring and CEO turnover is more sensitive to stock performance in these firms.
In summary, prior research suggests that females are more caution and more likely to improve corporate governance. This lead to the argument that female Chairman are less likely to be aggressive in making judgments related to discretionary accruals and to have higher accruals quality.
Therefore, we formally state the hypothesis as follows:
H1: Ceteris paribus, firms with female Chairman will exhibit lower earnings ma- nagement.
2) Tenure
Tenure of managers is another notable considerable factor in characteristic of senior management. Tenure affects cognitive foundation, prompt executives to make a different strategic choice, and eventually affect organizational performance. Tenure of senior managers has an effect on communication between the team and other executives. The longer the time to work jointly is, the better mutual understanding and communication between senior managers is. There will be fewer conflicts within the top management team. Organizational performance will be significantly improved [10] . If senior managers work in the company longer, they can more deeply understand the organization's policies and procedures. And organizational experience as an indicator variable, tenure also represents the level of familiarity with a common language in the internal organization [11] . The awareness of organization's resources and identification capability for external environment is positively correlated to tenure of managers.
Wiersema and Bantel [12] found that average tenure of bankrupt enterprises is shorter that the successful companies, which leads to lack of mutual understanding and information gathering time, finally giving rise to the mistakes of strategic decision- making. Thus, I hypothesize the following
H2: Ceteris paribus, firms with longer tenure Chairman will exhibit lower ear- nings management in China.
3) Age
Executives with different age show variety in the risk tendency and behaviors, which affects firm strategy and performance. An older Chairman tends to choose conservative strategy and becomes risk-averse tendency. Meanwhile, the older Chairman has lower passion and involvement to work, and is willing to live a peace condition. Therefore, decision-making tend to be steady [6] [13] . Prendergast and Stole1 [13] believe that in order to show their abilities, the young managers likely to exhibit over-confidence in corporate decision-making, meanwhile the greater possibility of manipulating earnings.
Moreover, the older Chairman has higher reputation compared with younger, so is not willing to exaggerate the earnings by earnings management. The older Chairman thinks risk things such as earnings management would affect their reputation. As well as, the older Chairman attaches more attention to risk management and promotes more stringent standards of control activity, then represses earnings management. He and Liu [14] show that the age of executives is negatively related to financial restatements.
Therefore, we propose the following hypothesis:
H3: Ceteris paribus, firms with older Chairman will exhibit lower earnings ma- nagement.
4) Education
To some extent, the individual’s education level reflects their knowledge and skills. Thus, education can affect their values and decision-making of senior management by improving the cognitive education and skills.
It is believed that Chairman with relatively high education has a wider range of knowledge and more systematized knowledge system, and is thoughtful dealing with problems [6] . Furthermore, prior research finds that level of education is positively related to individual’s cognitive complexity, receptivity to innovation and information processing capabilities [15] .
Earnings management is comparatively more professional and higher risk activity. Chairman with higher level of education can efficiently acquire related accounting knowledge. As a result, he can analyze related information fully, see pattern of earnings management, understand the serious consequences of earnings management, and is keenly aware potential risk. He can prevent the behavior of earning management to occur. Therefore, we propose the hypothesis:
H4: Ceteris paribus, firms with higher education Chairman will exhibit lower earnings management.