Does Greater Access to Employees With Information Technology Capability Improve Financial Reporting Quality? John L. Abernathy, Jan (J.) Philipp Klaus, Linh Le, and Adi Masli
Contemporary Accounting Research, Vol. 40, No. 3 (Fall 2023), pp. 2071-2105
OVERVIEW
Information technology (IT) plays an essential role in financial reporting. However, many companies today lack sufficient human capabilities to utilize IT competently. We examine the association between a firm's access to IT-capable labor and financial reporting quality (FRQ). We proxy for access to IT-capable labor using workforce measures in the metropolitan statistical area (MSA) where the firm operates, including (1) the number of IT-related college degrees relative to the total active workforce, (2) the level of education of IT graduates, (3) the income level of IT graduates, and (4) a composite measure. We find that firms in MSAs with a higher IT-competent labor force are associated with fewer financial reporting misstatements and internal control issues. Our results suggest that firms with access to more capable IT employees are associated with higher quality financial reporting.
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