City Research Online

Abstract

This paper examines how general counsels (GCs) in top management influence the use and timing of changes in accounting estimates (CAEs), an important but underexplored area in financial reporting. We provide evidence that when pre-CAE earnings narrowly miss analyst forecasts, firms with a GC in top management (GC firms) are more likely than non-GC firms to use income-increasing CAEs to meet or beat earnings expectations. These results are more pronounced for firms with weak integrity cultures, low analyst following, and non-industry-specialist auditors. We also find that in GC firms, post-CAE earnings are less predictive of future cash flows, suggesting a decline in earnings informativeness. Overall, our findings are consistent with GCs shaping the exercise of reporting discretion within GAAP rather than solely serving a gatekeeping function, highlighting how legal expertise at the executive level influences both the credibility and informativeness of reported earnings.

Publication Type:	Article
Publisher Keywords:	general counsels, changes in accounting estimates, earnings benchmarks, earnings informativeness, corporate governance
Subjects:	H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management H Social Sciences > HF Commerce > HF5601 Accounting H Social Sciences > HG Finance K Law > K Law (General)
Departments:	Bayes Business School Bayes Business School > Faculty of Finance
SWORD Depositor:	Symplectic Administrator

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