Who Manages the Firm Matters: The Incremental Effect of Individual Managers on Accounting Quality
Kara Wells
Southern Methodist University
kewells@smu.edu
ABSTRACT
I investigate whether individual managers have an incremental effect on firms’
accounting quality (AQ) after controlling for known determinants of AQ, time fixed effects and
firm fixed effects. To identify the manager-specific effect on firm AQ, I construct a data set that
tracks the movement of 907 managers across firms over the period 1992-2014. Results indicate
that individual manager fixed effects explain a statistically and economically significant
proportion of the cross-sectional variation in AQ, which is comparable to that of firm fixed
effects. Variation in managerial attributes that impacts AQ is applied consistently as firms switch
manager-type. Using a setting of exogenous CEO turnover, I find managerial idiosyncrasies
impact AQ and are not merely a reflection of firms actively choosing managers with a desired
combination of managerial attributes that in turn impact the variability of accruals. Overall, my
study underscores the importance of individual managers in the determination of AQ.