Foreign Experienced CFOs’ and Financial Reporting Quality

This paper aims to empirically examine whether foreign experienced CFOs (FCFOs) affect financial reporting quality (FRQ). Analyzing Chinese listed firms from 2005 to 2018, this study employs methods such as ordinary least square, fixed effect model (FEM), generalized method of moment (GMM), two-stage least square (2SLS), propensity score matching method (PSM), and change analysis to find the relationship between FCFOs and FRQ. The results show that FCFOs significantly positively impact FRQ, which means that FCFOs improve FRQ in Chinese firms. We argue that international experience imprints CFO cognition, elevates his moral standards, and makes him more transparent in dealings, leading to a better information environment and robust corporate governance mechanism. In addition, this study indicates that the relationship between FCFOs and FRQ is significant in non-state-owned enterprises (NSOEs), suggesting that NSOEs outperform state-owned enterprises (SOEs) in terms of FRQ. Finally, we find that both foreign work and study experiences of CFOs affect FRQ. The findings suggest that asymmetric information problems can be alleviated by encouraging foreign experienced individuals to the firm’s CFO position. The study provides empirical evidence that a CFO’s foreign experience determines a firm’s FRQ.