۱٫ Introduction

۲٫ The governance role of financial education

۳٫ Investor education indices and investor protection variable

۴٫ Research design and sample

۵٫ Empirical results

۶٫ Robustness tests

۷٫ Conclusion

Acknowledgements

Research Data

References

Abstract

Previous studies emphasize the importance of investor legal protection on financial reporting quality. We argue that investors’ awareness of their legal rights and understanding of the financial products play complementary roles. Financially welleducated investors are more likely to be able to understand investment-related information and less likely to be tricked, hence can pressure managers to eschew misappropriate behavior. This paper explores the role of investor financial education as a corporate governance mechanism in the context of earnings quality. Using data from 43 countries during the sample period of 1994 to 2012, we find that earnings quality is higher in countries with better financial education after controlling for various institutional environments. Interestingly, the positive effect of financial education on earnings quality exists only in countries with stronger investor legal protection, indicating a complementary role of financial education. Our study provides evidence on the role of financial education in investor protection.

Introduction

Since the financial markets and products have become more and more complicated, policymakers in both developed and developing countries recognize the growing importance of financial literacy and investing resources in financial education programs. Especially after the outbreak of the global financial crisis, financial literacy and financial education are considered as a key pillar of financial market stability because financial education can enhance level of investor protection. A large body of research has addressed the role that financial education and literacy play on investors’ individual financial behavior (e.g., Graham et al., 2009; van Rooij et al., 2011, 2012; Giofré, ۲۰۱۷; Bellofatto et al., 2018; Hsiao and Tsai, 2018; Krische 2019) 1 . However, it is little known whether financial education affects corporate policy on financial reporting. This study fills in this gap by exploring the impact of investor financial education on earnings quality in an international setting.