Does the risk aversion of accountants matter? Female rank-and-file accounting employees and internal control quality

Abstract

Using novel data on corporate accounting employees, we find that the risk aversion of rank-and-file accounting employees, proxied by the proportion of female accountants, is negatively associated with the likelihood of internal control weaknesses. The results are incremental to controlling for other accounting employee characteristics, such as experience and quality, which are also associated with fewer internal control weaknesses. In contrast, female non-accounting employees explain operating risk and not internal control risk. We mitigate endogeneity concerns by using an entropy balanced sample and an instrumental variable approach that exploits variation in the external supply of female accountants. Our study is among the first to provide large-sample archival evidence that characteristics of accounting employees matter to financial reporting and how these effects differ from non-accounting employees.