The diversity paradox: the association between Chinese top management team heterogeneity and IPO earnings management

This study examines the association between top management team (TMT) heterogeneity and earnings management (EM) during the Chinese IPO process. Drawing on information processing theory and social identity theory, it explores whether heterogeneity in age, education, overseas experience, gender, financial background, and functional background relates to accrual-based (DA) and real earnings management (RM). Using a sample of 2327 Chinese A-share IPOs spanning 2007 to 2021, the analysis shows that TMT heterogeneity is significantly associated with EM. Specifically, heterogeneity in financial background, overseas experience, and gender is linked to higher EM, while educational heterogeneity is associated with lower EM. The relationship is more pronounced in non-state-owned, non-R&D, and smaller issuers. Although instrumental variables are employed to mitigate endogeneity, potential limitations remain. Thus, the findings are primarily interpreted as evidence of correlation rather than causation. The results provide new insights into how TMT diversity influences financial reporting behaviours during the IPO.