The Effects of Financial Reporting Irregularity on University Major Choices
I examine whether financial reporting irregularity in the form of financial fraud leads to a decline in the enrollment of accounting programs in U.S. colleges. I find that the percentage of students awarded a bachelor’s degree in accounting decreases after the revelation of financial fraud for colleges geographically close to the fraud firms. The enrollment of female students declines more than that of male students. These effects persist for at least two years after the regulatory authorities reveal the fraud to the public. In addition, while financial fraud events lead to a decrease of enrollment in accounting programs, they do not have a similar negative impact on other business majors. In the cross-sectional analysis, I show that students who hold moral values—such as fairness and justice—in high regard are more likely to choose other disciplines. Further analysis reveals that financial fraud involving top management, such as the CEO or CFO, causes a more significant decline in accounting program enrollment than do fraud cases not involving top management. Finally, I find that the decrease in accounting program enrollment is greater when the fraud is perceived to be more severe by the students. These findings extend our understanding of the negative societal impact of financial reporting irregularity. They also highlight the importance of accountants holding high moral values in promoting the long-term sustainable development of economics and the profession.