This paper investigates the associations of ex-bureaucrats and ex-politicians serving on bank boards with financial reporting quality using a sample of Turkish banks over the period 2007–2022.
We mainly perform ordinary least squares and logistic regressions to test our hypothesis and address the research question. To mitigate selection bias and endogeneity problems, we perform the Heckman two-stage selection model and system GMM procedures. To mitigate the omitted variable bias, we use a fixed effects estimator. Additionally, we constructed an alternative sample by excluding ex-bureaucrats without professional experience in accounting, finance, taxation, or other relevant fields. Finally, we created interaction terms using the ex-bureaucrat and ex-politician variables.
The findings indicate that ex-bureaucrat directors are associated with higher financial reporting quality, particularly through lower discretionary loan loss provisions, whereas ex-politician directors exhibit no consistent association with financial reporting quality. Additional analyses provide robust support for the discretionary loan loss provision results. However, the evidence for small-profit reporting is less robust, particularly in the bank fixed-effects estimations. Furthermore, the results remain robust when ex-bureaucrats whose public sector careers were unrelated to accounting, finance, or related fields are excluded. This finding suggests that the documented association is more closely linked to the relevant expertise accumulated during bureaucratic careers than to bureaucratic status per se.
This study contributes to the literature by showing that the association between ex-bureaucrats and bank financial reporting quality appears to depend on the relevant expertise accumulated during their public sector careers, rather than on bureaucratic background per se. It also offers novel evidence on the heterogeneous implications of different forms of government experience for bank financial reporting quality.
