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Title: Does Greater Access to Employees with Information Technology Capability Improve Financial Reporting Quality?
Citation Type: Working Paper
Publication Year: 2020
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Abstract: We examine the association between a firm's access to information technology (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 is headquartered, including: (1) number of IT-related college degrees relative to total workforce; (2) level of education of IT graduates; (3) income level of IT graduates; and (4) a composite measure. We find that firms in MSAs with a greater IT competent labor force are associated with a significantly lower current and future probability of an internal control material weakness and financial misstatement. In terms of economic significance, we document that a one-standard-deviation increase in the IT human capability measures is associated with a 10 to 29.3 percent decrease in the probability of a firm experiencing a material weakness and a 6.2 to 18 percent decrease in the probability of a firm experiencing a financial misstatement, respectively. This study contributes to the IT business value research, as well as to the emerging literature stream examining the influence of geographic labor characteristics on firm-level outcomes.
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Authors: Abernathy, John L.; Klaus, J. Philipp; Le, Linh; Masli, Adi
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Data Collections: IPUMS USA
Topics: Labor Force and Occupational Structure, Other
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