Title: Top executive background and financial reporting choice
Description: We study the role of executive functional background in explaining goodwill impairment choices. We focus on top executives (CEOs and CFOs) whose employment history includes experience in investment banking, auditing, or private equity/venture capital. On average, we find that former auditors are significantly more likely to impair goodwill. However, further investigation reveals that former auditors and investment bankers are more likely to impair goodwill when their reputation concerns are low, suggesting that those executives are subject to their own opportunistic motives. We also find that the greater propensity of former auditors and investment bankers to report goodwill impairments is concentrated in firms that have a board member with a similar background. Finally, we find that former investment bankers are more likely than other executives in our study to disclose pro forma earnings excluding goodwill impairment. Overall, our results suggest that executive functional background is a significant explanatory factor of goodwill impairment reporting and that its effect is better understood in the context of upper echelons theory and agency theory.