Access to IT-Capable employees and the relevance of financial information

Abstract

In this paper, we examine IT-capable employees’ role in the production process of financial information. We posit that enhanced management of raw data during this process decreases technical errors and increases data processing speed, thus allowing financial information to be more relevant and, therefore, more useful to the users of financial statements. Since employee characteristics such as IT capability are not observable at the firm level, we utilize US Census Bureau data to create a set of proxies of IT-capable employees at the Metropolitan Statistical Area (MSA) level. These measures include the percentage of IT graduates relative to the active workforce and IT graduates’ education and income levels. We find that each of our proxies for employee IT capability is associated with lower XBRL extensions and lower earnings announcement lag. Our findings suggest that greater access to IT-capable employees is associated with increased relevance of financial disclosures.