SSRN Id4761218

From Academia to the Courtroom: Impact of Academic Executives
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on Corporate Litigation Risk☆
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Ping Liu a, Hanxiong Zhangb, ShanLic,, Kai Xingd*
a School of Economics, Jinan University, Guangzhou, Guangdong, 510632, China

b Surrey Business School, University of Surrey, Guildford, Surrey, GU2 7XH, UK
c School of Economics and Management, China University of Mining and Technology,
Xuzhou, Jiangsu, 221116, China
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d School of Economics and Management, Nanchang University, Nanchang, Jiangxi,
330031, China
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Abstract
Litigation is one of the most common risks a company may face during its
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operations. This study investigates whether executives with academic work
experience (“academic executives”) reduce corporate litigation in China. We
found that academic executives significantly reduce corporate litigation,
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especially when they reach critical mass on the board. Specifically, academic
executives affect corporate litigation by intensifying the quality of internal
controls and reducing earnings management. Further analyses showed that the
effect of academic executives on corporate litigation is mainly because of
executives with teaching experience in universities. Our findings shed light on
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the value of executives’ academic work experience in risk management and

corporate governance in the context of the upper echelons and imprinting
theories.
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Keywords: Academic Experience; Litigation Risk; Critical mass; Executive

Characteristics; Earnings Management
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☆ Dr. Kai Xing would like to acknowledge the financial report provided by the National Natural Science Foundation
of China (72201120).
* Corresponding author.
Email addresses: pingliuzy@163.com (P.Liu), hanxiong.zhang@surrey.ac.uk (H.Zhang), shanlicumt@163.com (S.

Li),xingkai@ncu.edu.cn (K. Xing)
This preprint research paper has not been peer reviewed. Electronic copy available at: https://ssrn.com/abstract=4761218
From Academia to the Courtroom: Impact of Academic
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Executives on Corporate Litigation Risk
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Abstract
Litigation is one of the most common risks a company may face during its
operations. This study investigates whether executives with academic work
v
experience (“academic executives”) reduce corporate litigation in China. We found
that academic executives significantly reduce corporate litigation, especially when
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they reach critical mass on the board. Specifically, academic executives affect
corporate litigation by intensifying the quality of internal controls and reducing
earnings management. Further analyses showed that the effect of academic
executives on corporate litigation is mainly because of executives with teaching
experience in universities. Our findings shed light on the value of executives’
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academic work experience in risk management and corporate governance in the
context of the upper echelons and imprinting theories.
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Keywords: Academic Experience; Litigation Risk; Critical mass; Executive
Characteristics; Earnings Management
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1. Introduction
Litigation risk is a measure of the corporate lawsuit scale that firms defend, which represents
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the value of the plaintiff’s demand for pecuniary damages and is used to measure the relative scale
and economic magnitude of a lawsuit (Liu et al., 2022b). Litigation is one of the most common risks
a company may face during its operations. Pursuing profitable opportunities inevitably requires
companies to take risks. However, involvement in lawsuits can have several consequences. For
example, corporate litigation leads to increased stock price volatility and losses in shareholder
wealth (Bhagat et al., 1998). Corporate litigation also has significantly negative effects on firm
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performance (Wu et al., 2020), incurs legal costs (Guan et al., 2021), and increases credit risk
probability (Arena, 2018). Indeed, a significant proportion of listed companies’ litigation costs
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surpass their previous year’s net profits or total revenue, thus posing a significant threat to their
ongoing operations. Therefore, it is crucial to implement measures to reduce litigation risk. While
the effects of litigation risk have been the focus of many studies (Hassan et al., 2021, Liu et al.,
2022a, Arena et al., 2021, Aharony et al., 2015, Hutton et al., 2014), relatively little attention has
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been paid to the factors that prevent corporate litigation risk.
Board diversity has been extensively researched as well. For example, board diversity reduces
the frequency of misconduct fines (Arnaboldi et al., 2021), leads to lower volatility and better
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performance (Bernile et al., 2018), reduces the risk of securities litigation (Joo et al., 2021b),
enhances managerial ability (Baghdadi et al., 2023), and has a positive impact on renewable energy
consumption (Atif et al., 2021). However, executive diversity remains under-studied in the literature.
During China’s economic reform and opening-up, many managers moved from administrative
institutions to business enterprises or ventured into entrepreneurship (Dickson, 2007). Among them,
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a significant portion had academic research experience,1 giving rise to the phenomenon of “scholars
entering the business world” in China’s economic development (Du, 1998). Many individuals with
academic work experience (“academic executives”) hold crucial management positions in
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companies. Academic executives are top executives with research and teaching experience, that is,
they have academic titles from universities, research institutions, or associations (Ju et al., 2023).
Academic executives normally receive rigorous academic training, making them more cautious
and conservative in their logic and behavior and more reliant on professional knowledge for
judgment and analysis. Consequently, academic executives are associated with a higher degree of
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risk aversion. Hence, whether and how academic executives influence a company’s risk
management practices are critical questions to address. However, to the best of our knowledge, the
effects of academic executives on corporate litigation have received negligible attention, leaving a
large gap in the literature. This study thus empirically examines the impact of academic executives
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on corporate litigation and provides a new understanding of this particular executive trait.
The upper echelons theory suggests that management behaviors of a company are deeply
influenced by its executives team (Hambrick and Mason, 1984). The imprinting theory suggests that
the sensitive period and imprints formed during executives’ academic research have a lasting impact
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1In China, the term “academic executive” refers to an executive who has taught in universities or colleges, has engaged in research
work, or has worked as a research fellow in research institutions or associations (Jin et al.,2022, Ju et al.,2023).
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on their thinking and behavior (Marquis and Tilcsik, 2013). Based on these theories, this study
investigates whether academic executives play a role in reducing corporate litigation using a sample
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of Shanghai and Shenzhen stock exchange-listed companies in China from 2008 to 2020. We found
that approximately 1/10 of A-share listed companies on the Shanghai and Shenzhen Stock
Exchanges in China were involved in litigation each year from 2008 to 2020. In 2008, 81 firms had
two or more executives with academic experience. By 2020, this number reached 454. Overall, the
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proportion of academic executives in corporate management teams has shown an increasing trend
over the last decade. As much as 35.98% of companies have at least one academic executive and
12.40% have at least two academic executives. Studying academic executives is thus important, as
they influence China’s economic development and are crucial for understanding issues related to
economic development and corporate management in the country (Zhou et al., 2017). We also found
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that academic executives significantly reduce corporate litigation and are more influential when
they reach critical mass (e.g., when the company has at least two academic executives). This
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association is robust to a series of checks and endogeneity tests. Academic executives reduce
corporate litigation by intensifying quality of internal control and reducing earnings management.
Moreover, the impact of academic executives on corporate litigation is sensitive to the quality of
the legal environment, market competition, and financing constraints. The benefits to academic
executives are more pronounced in small firms and firms with a high degree of information
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asymmetry. Further analyses showed that executives with university teaching experience can help
curb corporate litigation risks.
Our study contributes to the literature in four ways. First, while board diversity has been the
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focus of many studies (Arnaboldi et al., 2021, Atif et al., 2021, Baghdadi et al., 2023, Joo et al.,
2021b, Bernile et al., 2018), relatively little attention has been paid to the relationship between
executive diversity and corporate litigation. In addition, a considerable body of literature has
examined the educational backgrounds of executives, such as whether they hold doctoral or MBA
degrees (He and Hirshleifer, 2020, Urquhart and Zhang, 2021, King et al., 2016). However, there is
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limited research on academic executives. Educational background and academic experience are two
distinct aspects, as education reflects knowledge and abilities, whereas experience shapes individual
traits and decision-making styles, with significant differences in their impacts on executives (Kaplan
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et al., 2012, Cho et al., 2017). We thus uncovered new, relevant insights for academic executives.
Second, this study contributes to the literature on the role of executives or directors with
academic experience in firms. Studies by Chen et al. (2019) , Jin et al. (2022) and Ju et al. (2023)
are related to ours. Specifically, Chen et al. (2019) use the resignations of academic independent
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directors (AIDs) to examine their contributions to firm value, and find that AIDs are positively
associated with firm value. Jin et al. (2022) examine the effect of AIDs on firm-specific stock price
crash risk and find that AIDs reduce stock price crash risk. Ju et al. (2023) find that academic
executives promote enterprise innovation through basic research, collaboration, and incentives for
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knowledge workers. The difference between these three studies and ours is that we conduct tests
based on critical mass theory (Arnaboldi et al., 2021), and find that academic executives
significantly reduce corporate litigation when they reach critical mass (e.g., when the company has
at least two academic executives).
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Third, we contribute to the growing body of literature on corporate litigation. Although

numerous studies have examined the effects of litigation risk (Arena et al., 2021, Aharony et al.,
2015, Hassan et al., 2021, Liu et al., 2022b), few have investigated the factors that affect the
corporate litigation risk. Instead, the literature focuses on factors such as accounting conservatism,
corporate governance (Johnson et al., 1999) , earnings management (DuCharme et al., 2004) , and
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internal controls (Chen and Chen, 2019). To the best of our knowledge, this is the first study to
thoroughly investigate the association between executive team’s academic experience and corporate
litigation risk.
Fourth, we investigate the mechanisms by which academic executives reduce corporate
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litigation risk. Our analysis shows that legal environment, market competition, and financial
constraints positively influence academic executives’ effectiveness in moderating this risk. Further
analyses reveal that academic executives strengthen internal controls and reduce earnings
management, thereby reducing corporate litigation risk. The empirical results support the upper
echelons, imprinting, and agency theories. In sum, our findings provide important guidelines for
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risk management, corporate governance, and talent recruitment.
The remainder of this paper is organized as follows. Section 2 reviews the relevant literature
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and develops the research hypotheses, while Section 3 discusses the data and empirical model design.
Section 4 presents the empirical results. Section 5 presents the channels through which academic
executives influence litigation risk, and Section 6 presents our analysis results. Finally, Section 7
concludes the paper.
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2. Literature review and hypotheses development
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2.1 Academic experience
Ju et al. (2023) find that firms with academic executives have higher quantity and quality of
innovation output owing to more Research and Development activities, existing knowledge pools,
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basic research, and a wider knowledge base. Jiang and Murphy (2007) document that firms with
former business professors as executives perform significantly better than those without such
executives. Francis et al. (2015) investigate whether the presence of academic directors affects firm
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performance and corporate governance, and find that the presence of academic directors in the
boardroom is associated with better firm performance. White et al. (2014) show that small- and mid-
cap firms tend to appoint professors to expand their boards and that the market reacts positively to
the appointment of professors with science, medicine, and engineering expertise. G ü ner et al.
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(2008) investigate whether directors with financial expertise affect corporate policies, and find that
finance professors increase external funding and decrease investment-cash flow sensitivity.
Although an extensive body of research has explored the impact of academic experience on the
various aspects of company operations, few studies have examined the influence of academic
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executives’ litigation.
2.2 Litigation risks
The corporate litigation literature focuses primarily on three aspects: determinants of corporate
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litigation risk, effects of corporate litigation on corporate performance, and factors affecting the
prevention of corporate litigation risk. Specifically, Gul et al. (2002) find that legal protection and
enforcement can effectively reduce the litigation risks arising from debt contract violations.
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DuCharme et al. (2004) examine the relationship between earnings management and litigation,
finding a positive correlation between shareholder litigation and the degree of earnings management.
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Francis et al. (1994) find that, among a sample of companies that experienced a significant drop in
stock prices but were not sued, 87% issued profit decline warnings. This finding suggests that profit
decline announcements are not the primary cause of shareholder lawsuits. Adhikari et al. (2019)
prove that companies in which women have greater power in top management teams face fewer
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litigation operations. Joo et al. (2021b) show that the risk of securities litigation is inversely
proportional to the proportion of female independent directors on a company’s board of directors.
Lawsuits have significant negative effects on firm performance and cause turnover among
executive officers and directors (Wu et al., 2020, Aharony et al., 2015) , leading to auditor
resignation (Krishnan and Krishnan, 1997) , increasing the likelihood of exiting controlling
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shareholders (Liu et al., 2022b) , having significant negative effects on external financing, and
lowering a company’s investment level (Hutton et al., 2014). In addition, Hassan et al. (2021) find
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that reducing litigation risk increases companies’ innovation achievements. Arena et al. (2021) show
that a reduction in the threat of securities litigation increases corporate tax avoidance.
Mohan (2006) finds that the better the quality of a company’s information disclosure, the lower
is the litigation risk it faces in subsequent years. Johnson et al. (1999) find that accounting
conservatism and corporate governance are negatively correlated with the probability of a company
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facing litigation. Although many of these studies focus on corporate litigation, there is little research
on the relationship between academic executives and corporate litigation.
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2.3 Academic executives and corporate litigation
The upper echelons theory argues that different characteristics of corporate executives will
have varying degrees of impact on a company’s decision-making process, including risk
management behavior and decisions (Hambrick and Mason, 1984). Imprinting theory suggests that
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the sensitive phases and imprints formed during the academic research period will continuously
influence executives’ thinking and behavior (Marquis and Tilcsik, 2013). As academic research
requires rigorous and precise publication and reporting work, academic executives are more
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cautious and possess rigorous logical and analytical abilities, making their information disclosure
more trustworthy (Jiang and Murphy, 2007). Academic executives can thus enhance the quality of
corporate information disclosure. They may be better at interpreting and conveying complex
financial and business information, enabling investors and stakeholders to better understand a
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company’s operational status and risk situations. The improved quality of information disclosure
reduces information asymmetry, investor uncertainty, and litigation risk. Furthermore, academic
executives’ characteristics may make them more attentive to financial transparency and compliance.
They may lean toward accurately disclosing financial information and adhering to relevant laws and
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regulations to avoid misconduct or potential legal risks. In addition, academic executives are trained
to be independent critical thinkers with their own opinions and judgments, and are thus less likely
to be influenced by others (Jiang and Murphy, 2007, Francis et al., 2015). When internal
stakeholders attempt to induce executives to make unreasonable decisions to pursue private interests,
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they are more likely to refuse poor plans to uphold their reputation. Avoiding poor performance in
flawed projects reduces the likelihood of bad news, thus lowering litigation risk. As rational
economic agents, both managers and shareholders seek to maximize their own interests. However,
the weakened constraint mechanisms resulting from information asymmetry create opportunities for
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opportunistic behavior by managers to maximize their utility. The disclosure of internal control
information can help investors understand a company’s internal control establishment and
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implementation, enabling them to objectively assess the level of management and the quality of
accounting information. This puts pressure and constraints on managers to maximize company value,
but also opens the door for managers to manipulate the disclosure of internal control information to
maximize their private benefits.
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Academic executives in China are more likely to be influenced by traditional Confucian values,
which emphasize personal virtues such as loyalty, honesty, obedience, and sincerity (Pang et al.,
2020, Zhu, 2015, Romar, 2002). The most relevant characteristics to the economy are harmony,
integrity, and honesty (Tan, 2003). These values may potentially reduce the litigation risk for
businesses. On one hand, Confucian culture pursues social harmony (Li, 2008). In business,
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emphasizing harmonious relationships helps reduce internal and external conflicts (Kung and Ma,
2014), lowering the likelihood of adversarial legal disputes. On the other hand, Confucian culture
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emphasizes the individual’s honesty and integrity (Tan, 2003, Liu, 1998). Companies adhering to
these values in business transactions and internal management contribute to reducing false
statements and curbing inappropriate behavior (Tang et al., 2022), thus lowering the risk of legal
liability. Confucianism reduces conflicts and minimizes minority shareholder expropriation (Kung
and Ma, 2014, Du, 2015). In regions with a deeper Confucian cultural heritage, local enterprises
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exhibit fewer instances of fraud (Tang et al., 2022). Therefore, it can mitigate the litigation risk for
companies.
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Moreover, academic executives are more likely to have higher ethical standards, sense of social
responsibility, and self-discipline (Baumgarten, 1982, Cho et al., 2015). Consequently, academic
executives tend to apply higher ethical standards and a sense of responsibility in their decision-
making, forming an internal self-monitoring and constraint mechanism. Academic executives may
also have a deeper understanding of and sensitivity to legal and compliance requirements. They may
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also prioritize company compliance. Additionally, an academic background makes executives more
cautious and conservative in their logical reasoning. Previous research has found that individuals
with academic training tend to base their judgments and analyses on professional knowledge rather
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than on subjective judgments (Jiang and Murphy, 2007). Moreover, when faced with external
environmental uncertainties, their decision-making tends to be more stable and conservative (Jiang
and Murphy, 2007). Therefore, academic executives may possess better risk-management abilities.
They may focus more on risk identification, assessment and the development of corresponding risk
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management strategies. The goal of internal control is to ensure the legal and compliant operations
of enterprises and prevent and control risks, especially legal and litigation risks. Existing research
suggests that internal controls can reduce the number and amount of litigation for companies.
Therefore, academic executives can suppress litigation risks by strengthening their internal controls.
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Third, according to the agency and incentive theories (Logan, 1968),2 in modern corporate
systems that separate ownership from control, conflicts of interest between principals (shareholders)
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2 Incentive theory of motivation is a psychological and behavioral theory that seeks to explain why individuals are motivated to act
in certain ways based on the incentives or rewards they expect to receive. It suggests that people are driven by the desire to obtain
positive incentives or avoid negative ones, and these incentives influence their behavior and decision-making. The theory is rooted
in the idea that humans are rational beings who evaluate the potential benefits and costs of their actions before deciding how to act.
According to incentive theory, if the perceived benefits outweigh the perceived costs, individuals are more likely to engage in a
particular behavior. Motivation theories can be classified into two types based on different research levels: content- and process-
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and agents (managers) exist. Because principals cannot fully understand the effort levels of agents,
they use company earnings information to sign incentive contracts with agents to motivate them to
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work hard, reduce agency costs, and increase company value (Jensen and Meckling, 1976).
However, information asymmetry and monitoring costs inevitably motivate agents to maximize
their rewards by selecting and changing their accounting policies. Specifically, executives, with
superior information compared to shareholders, may manipulate earnings information in financial
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reports to align it in favor of maximizing their own interests. Academic backgrounds are beneficial
for instilling and promoting values such as responsibility, honesty, trust, and service, which enhance
professional ethics and thus reduce agency costs (Baumgarten, 1982, Cho et al., 2015, Francis et al.,
2015). Academic executives, whether motivated by their scholarly spirit of rigor and prudence or
influenced by the self-cultivation of role models, tend to have lower incentives for earnings
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management when disclosing company accounting information. Consequently, such companies
exhibit lower earnings management levels (Francis et al., 2015). Previous research found a positive
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correlation between earnings management and litigation risk (DuCharme et al., 2004). Therefore,
academic executives contribute to reducing litigation risk in their companies by suppressing
earnings management. Based on this, we propose the following hypothesis:
H1. Academic executives suppress litigation risks.

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However, other studies have proposed contrasting viewpoints, suggesting that high-level
academic executives may be associated with higher company litigation risk. Academic executives
may face higher expectations and pressure because they are perceived as having higher capabilities
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and knowledge (Bowman, 2005) . When a company faces challenges and difficulties, investors,
regulatory bodies, and other stakeholders may have higher expectations from academic executives,
increasing the risk of litigation if the company fails to meet these expectations. Academic executives
often enjoy a high level of exposure and reputation in their respective fields (Pang et al., 2020) .
Their knowledge of the law and regulations may make them more adept at identifying and
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understanding the issues and risks that could lead to litigation (Francis et al., 2015). Academic
executives may also be more inclined to seek legal remedies to resolve disputes (Francis et al., 2015).
Their understanding of legal systems and litigation procedures may lead them to view litigation as
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an effective means of resolving conflict. Consequently, they may be more likely to initiate or
participate in litigation, thereby increasing their association with a greater number of company
litigations. Based on this, we propose the following hypothesis:
H2. Academic executives promote litigation risks.

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based motivation theories. Content-based motivation theories aim to identify the factors that drive employees to work hard. As
these theories primarily study human needs and how to fulfill them, they are also known as needs theories. Conversely, process-
based motivation theories focus on the psychological processes involved in the generation of motivation and the transition from
motivation to specific behaviors. They explore how motivation arises and leads to the adoption of concrete actions.
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3. Data and Empirical modelling
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3.1 Data
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We use firms listed on the Shanghai Stock Exchange (SHSE) and the Shenzhen Stock
Exchange (SZSE) during the period 2008 to 2020. We choose 2008 as the beginning year of the
sample period due to firms are required to disclose managerial academic background information
starting from 2008. The academic and professional background data of executives used in this study
is sourced from the Management Team Personal Characteristics Database within the CSMAR
database. For some incomplete data, we supplemented it by referring to the resumes of the
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individuals in the database. Listed companies are mandated by the China Securities Regulatory
Commission (CSRC) to disclose significant litigation or arbitration cases they are involved in.
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Corporate lawsuit data are obtained from the sub-section 'China Listed Firm’s Litigation and
Arbitration Research Database' within CSMAR. These data are derived from the temporary
announcements and regular reports (including interim financial reports and annual financial reports)
of listed companies. This litigation dataset provides detailed information about lawsuit filings,
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including the ID of litigation events, announcement dates, announcement types, lawsuit types,
penalties, and the legal identities of firms (e.g., defendant or plaintiff). The DIB internal control
index is sourced from the DIB Internal Control and Risk Management Database, which emphasizes
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internal control and risk management within Chinese listed firms.3 We obtain additional financial
data from the CSMAR databases. We construct our sample as follows. (1) We exclude financial and
utilities companies because they have different financial statement formats and regulatory
environments (Hassan et al., 2021). (2) Observations with missing values are eliminated. (3) All the
continuous variables are winsorized at the 1st and 99th percentiles to mitigate the influence of
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outliers. After merging our data with corporate governance and other financial data, we obtained a
final sample of 27,264 firm-year observations from 3,525 unique companies.
3.2.1 Dependent variable: corporate litigation

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Corporate litigation risk is constructed as follows: we sum all the demands for pecuniary
damages in the lawsuits. In cases that the litigation scale is expressed in foreign currency, we convert
it into Renminbi (RMB) using the mid-year exchange rate for the year in which the litigation case
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was disclosed and then add that value to the RMB values of the other litigation cases. The total is
then scaled by the value of a firm’s total assets at the beginning of the period to account for the
differences in firm sizes and consequently to obtain variables for the relative scale of the lawsuits,
defined as the litigation scale. We have the scale of lawsuits defined as (AllVal) (Liu et al., 2022b).
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The point in time when a firm first discloses the litigation event is used as the time of litigation.
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3Shenzhen DIB Enterprise Risk Management Technology Co., Ltd. (referred to as "DIB") was founded in 2001. It is a state-owned
and nationally high-tech enterprise that focuses on the in-depth application of regulatory technology in the fields of risk
management, internal control, and compliance. DIB employs an innovative business model based on "big data + software +
solutions" and provides professional services both online and offline to large and medium-sized enterprises, as well as government
and public institutions.
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3.2.2 Test variable: academic executives
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We use two variables to measure academic executives. The first one is Academic1, a
continuous variable which is the proportion of academic executives to the total number of executives
in a firm in year t (Beladi et al., 2022). The second is Academic2, a dummy variable which equals
to one if at least two of the top executives has academic experience in year t, and is equal to zero
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otherwise (Adhikari et al., 2019). Among them, the executives team refers to senior management
personnel who directly participate in the decision-making of a company's operations, including the
CEO, general manager, executives general manager, deputy general manager, executives deputy
general manager, and chief financial officer of the company (Bamber et al., 2010) .
3.2.3 Control variables
Following prior studies (Joo et al., 2021a, Pukthuanthong et al., 2017), we control for a vector
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of firm characteristics that have been shown to affect corporate litigation. The control variables
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include Size (the natural logarithm of total assets at the end of the period), MB (the ratio of market
value divided by the book value of firm i in year t-1), Lev (the ratio of the total debts to total assets),
ROA (net income divided by total assets), Ret (annual average stock return defined as the average
of the daily stock returns during a one-year window), Sigma (the standard deviation of the daily
stock returns during a one-year window), FirmAge (the natural logarithm of years of establishment
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of the company), Dual (a dummy variable which equals one if the firm’s board chair is also its CEO
and zero otherwise), Board (the natural logarithm of the number of directors on a firm's board in
year t), Indep (the proportion of independent directors on a board in year t), Shrcr1 (the percentage
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of shares owned by the largest shareholder in year t), Cashflow(the net cash flow generated from
operating activities divided by total assets), Growth (the increased percentage of operating revenue
in year t-1), Mshare (the number of the shares held by management divided by the total shares in
issue), INST(the number of shares held by institutional investors divided by the total shares in issue).
Moreover, we add industry and year dummies to control for the industrial fixed effect and dynamic
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changes in the macroeconomic environment common to all firms over the sample period,
respectively. Appendix A provides definitions of all variables used in our analysis.
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3.3 Models
Following prior studies (Adhikari et al., 2019), we employ the fixed-effect model to examine
our hypotheses. To mitigate the potential reverse causality, all the independent variables are lagged
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by one-period. The basic empirical model employed is:
AllVali,𝑡 (1
= 𝛼0 + 𝛼1Academic1(Academic2)𝑖,𝑡−1 + 𝛼2𝑆𝑖𝑧𝑒𝑖,𝑡−1 + 𝛼3𝑀𝐵𝑖,𝑡−1 + 𝛼4Lev𝑖,𝑡−1 ) + 𝛼5
ROA𝑖,𝑡−1 + 𝛼6Ret𝑖,𝑡−1 + 𝛼7Sigma𝑖,𝑡−1 + 𝛼8FirmAge𝑖,𝑡−1 + 𝛼9Dual𝑖,𝑡−1 + 𝛼10Board
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𝑖,𝑡−1 + 𝛼11Indep𝑖,𝑡−1 + 𝛼12Shrcr1𝑖,𝑡−1 + 𝛼13Cashflow𝑖,𝑡−1 + 𝛼14Growth𝑖,𝑡−1 + 𝛼15
Mshare𝑖,𝑡−1 + 𝛼16INST𝑖,𝑡−1 + 𝑌𝑒𝑎𝑟 + 𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦 + 𝜀𝑖,𝑡−1
where 𝛼i represents regression coefficients, 𝜀 is an error term. The dependent variable AllVal
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is our proxy for corporate litigation, while Academic1 and Academic2 are the test variables, which
measure executives with academic experience in firms.
4. Empirical analyses
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4.1 Descriptive statistics
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Panel A of Table 1 presents frequency distributions of academic executives in our sample. We
have 27,263 firm-year observations in our sample. Of these, 17,455 firm-years have no academic
executive, and the remaining 6,428 have one or more academic executives. Of the latter, 1,918 firm-
years have one woman executive and 3,381 have two or more. We also present frequency
distributions of different type of academic experience. There are 510 executives with teaching
experience at universities, 551 executives with experience working in research institutions, and 945
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executives with experience conducting research in scientific associations.
Panel B of Table 1 presents the descriptive statistics of relevant variables. The average value
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of Academic1 is 8.55%, indicating that among all the executives in our sample, 8.55% of the
executives have academic work experience. The average value of Academic2 is 12.4%, indicating
that, 12.4% of companies have two or more academic executives. The mean value for AllVal is
0.127 (SD = 0.912). According to the SD, large variations exist in the corporate litigation risk
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measured using AllVal.
Table 1 about here
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4.2 Univariate analysis
Table 2 reports the results of univariate tests of the dependent variable of this study. The mean
of AllVal is 0.073 for the firms having academic executives and 0.135 for the firms without these
talents, and the differences are statistically significant at the 1% level. This means that firms having
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academic executives have lower corporate litigation than firms without these talents.
Table 2 about here
Table 3 plots the correction matrix. All the correlations between the independent variables are
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less than 0.65 in absolute value. To further rule out the concern of multicollinearity, we compute
the Variance Inflation Factor (VIF) for all independent variables. The largest one is 3.14, far below
the rule of thumb cutoff of 10.00 for multiple regression models (Kennedy, 2008) . Therefore,
multicollinearity is unlikely to be a concern in this study.
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Table 3 about here
4.3 Baseline regressions

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We analyze the effect of academic executives on the corporate litigation, and the results are
presented in Table 4. Columns (1) and (2) of Table 4 show the impact of academic executives
(Academic1) on corporate litigation is negative and statistically significant at the 1% significance
level, which indicates that the higher the proportion of academic executives, the more they can
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reduce the risk of corporate litigation. Similarly, columns (3) and (4) of Table 4 show a negative
relationship between the academic executives (Academic2) and corporate litigation risk, which
indicates that when a company has at least two academic executives, it can significantly reduce the
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risk of corporate litigation. The findings suggest that academic executives reduce corporate
litigation, which, in turn, favors hypothesis H14.
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Table 4 about here
4.4 Critical mass
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To explore the drivers of the effect of academic executives on corporate litigation, we conduct
test based on the critical mass theory (Arnaboldi et al., 2021), which posits that academic executives
would have to exceed a certain minority threshold for them to be able to have any material impact
on corporate outcomes such as monitoring, performance, and prevention of misconduct. Thus, we
run our baseline specifications in Eq. (1) using Critical Mass (=1), which indicates the presence of
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one academic executive in the top executive team, and Critical Mass (≥2), which indicates the
presence of two or more academic executives. Firms with at least two academic executives
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constitute about 12.4% of the firm-year observations in the sample. The presence of just one
academic executive in the top executive team is unlikely to give her much sway over corporate
policies. But the presence of multiple academic executives in the team allows them to form
coalitions and gives them greater power and influence over firm policies (Adhikari et al., 2019).
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Consistent with this hypothesis, Table 5 suggests that academic executives = 1 has no effect on
lawsuits, but academic executives ≥ 2 predicts the number of lawsuits next year negatively and
significantly. The model shows a statistically significant role in curbing corporate litigation when
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the number of academic executives reaches a critical mass.
Table 5 about here
4.5 Endogeneity
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Our baseline models yield a robust negative relation between academic executives and
corporate lawsuits. However, the results might be driven by an endogeneity bias. For example, it
may not be random that a firm appoints academic executive and this may cause a self-selection bias
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(Yuan and Wen, 2018). It is also possible that some omitted variables that affect both the
appointment of academic executives and corporate lawsuits drive our results. Furthermore, there is
a reverse causality concern. For example, some companies are likely to have a culture of avoiding
excessive risk to avoid lawsuits. Academic executives, who are considered more stable and cautious,
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may choose to work for these firms (Adhikari et al., 2019). Therefore, we try to mitigate the potential
endogeneity using six approaches.
4.5.1 Entropy Balancing

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In the implementation process of Entropy Balancing matching, researchers need to set only
one subjective parameter, which is the tolerance level for the iterative algorithm. This mitigates the
drawbacks in the Propensity Score Matching (PSM) implementation process, where there are many
subjective setting details, including but not limited to variable selection and model specification in
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the first stage of PSM, whether the matching is done with or without replacement, and whether it is
4 We employed high-dimensional fixed effects, controlling for firm fixed effects. The results are consistent with the baseline
regression findings.
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one-to-one or one-to-many matching.As clarified in Ali et al. (2022), recent developments in
addressing selection bias recommend favoring the Entropy Balancing (EB) design instead of the
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Propensity Score Matching (PSM) approach. We employ the Entropy Balancing (EB) method to
address potential selection bias issues (Hainmueller, 2012, Wilde, 2017). The regression results
based on our entropy-balanced sample are presented in columns (1) and (2) of Table 6. These results
align with the earlier findings, indicating that our conclusions remain robust even after accounting
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for differences in observable factors.
Table 6 about here
4.5.2 PSM-DID
To mitigate the reverse causality concern, we explore an exogenous shock to test whether
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stronger sense of self-discipline and higher ethical standards shaped by academic research
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experience causes academic executives to react differently from executives without academic
experience to shifts in incentives. These traits predict a cautious and steady behavior (Jiang and
Murphy, 2007). The benefit of this analysis is that the matching between executives and firms is
likely to be exogenous to the occurrence of external shocks (Bertsch et al., 2020, He and Hirshleifer,
2022) . On November 7, 2016, the General Office of the General Office of the Chinese Communist
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Party and the General Office of the State Council issued Several Opinions on Implementing the
Policy of Increasing the Value of Knowledge Oriented Distribution, pointing out that scientific
researchers and teachers are allowed to take part-time jobs and earn salaries moderately according
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to law and regulations. Considering that this policy is formulated by the central government, it is a
relatively exogenous impact for enterprises to promote their innovation. We exploit this policy as
an exogenous shock.
We match each treatment firm to one control firm using propensity score matching (PSM).
Following Quan et al. (2021), we first implement a logit regression to model the probability of being
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a treatment firm in the year prior to the shock. In the logit regression, we include a vector of control
variables. If academic executives operate companies more legally and in compliance, then they
should be affected more by the stronger incentive. So, the difference between how much they reduce
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corporate litigation risk versus executives without academic experience should increase when
incentive strengthens.
(2)
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AllVali,𝑡 = 𝛼0 + 𝛼1Treat𝑖,𝑡−1 × 𝑃𝑜𝑠𝑡𝑖,𝑡−1 + 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠 + 𝑌𝑒𝑎𝑟 + 𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦 + 𝜀𝑖,𝑡−1
where the dependent variable is the corporate litigation risk for firm i in year t+1 (because the policy
might affect corporate litigation risk with a lag,); Treat is an indicator equal to 1 if the policy is
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enacted in the firm of incorporation in a given year, and 0 otherwise.

Treat is an indicator equal to 1 if executives have academic experience, and 0 otherwise.
The key variable of interest is the interaction of Treat and Post. The coefficient on this
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interaction, β1, evaluates whether firms run by academic experience respond differently to the
implementation of the policy.
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We report the PSM-DID results in columns (3) and (4) of Table 6. The coefficient on Treat ×
Post is -0.0782 (t = -2.3025), suggesting that affected academic executives reduce corporate
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litigation risk 1 year after the implementation of the policy. The results of the PSM-DID model
support the hypothesis H1 that academic executives can help suppress the risk of corporate litigation.
4.5.3 Lagged variables
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In order to further alleviate the concern of reverse causality, we lag the independent variables
by 2-or 3-year. Regressions based on contemporaneous variables are susceptible to endogeneity bias
due to reverse causality, whereas regressions based on lagged values of independent variables help
to control for reverse causality and tend to be less susceptible to endogeneity effects (Ali et al.,
2022). We re-estimate equation (4) by using the 1-year lagged period’s values of the corporate
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litigation risk (i.e., year t) and the prior period’s values of academic executives and control variables
(i.e., years t-2 and t-3). Panels A and B of Table 7 show the results of the independent variables with
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two and three lag periods, respectively. The coefficient estimates on the academic executives
(Academic1, Academic2) are still significant at the 1% level.
Table 7 about here
4.5.4 Instrumental variable analysis

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In addition to the lagged dependent variable analysis, we use the 2SLS to mitigate potential
reverse causality concern. We utilize two instrument variables. The ideal instrument variable should
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have a strong correlation with academic executives, but it should not have a direct impact on the
corporate litigation. First, following Srinidhi et al. (2011), we use the proportion of academic
executives in the same industry in the previous year as the instrument. Whether a company in an
industry hires academic executives may have an impact on whether the company hires academic
executives
Second, we use average schooling years as the instrument (Barro and Lee, 1996).5 To some
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extent, companies in regions with higher per capita education can better attract academic executives.
We believe average schooling years are related to academic executives, and we can directly test the
relation. At the same time, it is unlikely that average schooling years can directly influence firm-
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level litigation.
The results of the 2SLS regressions are reported in Table 8. The first instrument variable, “IV1”,
is the proportion of academic executives from other companies in the same industry in the previous
year. The second instrument variable, “IV2”, is the average schooling years. The first-stage
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estimation result shows that both instruments are positively related to the main variables of interest,
Academic1 (Column 1) and Academic2 (Column 2). The F-stat is 82.59 and 27.34, respectively,
indicating that both instruments are valid because they are well above the threshold of 10. Similar
to our baseline regressions, the two-stage least squares estimation results also show that the
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coefficients of Academic1 and Academic2 are positive and statistically significant (Columns 3 to
4). These results provide further support for our hypothesis H1 that academic executives can reduce
corporate litigation risk.
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5 Following Wan et al. (2005), we calculate the average years of education per capita by converting the population education
structure data published in the annual "China Population Statistics Yearbook" over the years.
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Table 8 about here
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4.5.5 High-dimensional fixed effects
One weakness of our PSM analyses is that we only control for observed firm characteristics.
If the correlation between academic executives and corporate litigation is affected by unobservable
firm characteristics that cannot be accounted for in our PSM procedure, then any hidden bias due to
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latent variables may still remain after matching. We follow Gormley and Matsa (2013) and employ
multiple high-dimensional fixed effects in our benchmark regression.
The results are reported in Table 9. While the inclusion of high-dimensional fixed effects has
slightly decreased the statistical significance of the academic executives effect on corporate
litigation risk, the coefficient estimates on the academic executives (Academic1, Academic2) are
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still significant at the 10% level and are of similar economic magnitude as our benchmark results
presented in Table 4. Hence, these additional tests provide further support that academic executives
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reduce corporate litigation risk.
Table 9 about here
4.5.6 Placebo test er

We randomly assign academic executives to firms (for similar practices, refer to Chetty et al.
(2009). Specifically, we first randomly arrange the firm and year in which the firm has academic
executives. These selected firms, from a specific year in the total sample, are assigned to the
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treatment group, with the remaining firms being the control group. We then construct a false
treatment variable. The randomization ensures that this newly constructed regressor will have no
effect on corporate litigation; hence, if there are no significant omitted variables, we should infer
that the negative and significant effects of academic executives on corporate litigation does not stem
from other omitted variables. We conduct this random data generating process 500 times to avoid
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contamination by any rare shocks.

Fig. 1(a) plots the distribution of 500 estimated coefficients and their associated t-values for
the regression of academic executives on corporate litigation. The distribution in Fig. 1(a) is
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approximately normal and centers around zero. The t-values are near zeros, thereby proving that the
missing variables do not influence the estimation results and that the current results are rigorous.
Similarly, Fig. 2(b) plots the distribution of 500 estimated coefficients and their associated t-values
for the regression of academic executives on corporate litigation. A similar result to Fig. 2(b) is
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obtained. Combined, these results reveal that our estimates are not severely biased due to any
omitted variables.
4.6 Robustness tests

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4.6.1 Alternative measures of academic executives
We use two alternative measures of academic executives to assess the robustness of our
findings. Our first measure is the number of academic executives in year t (nAcademic). Following
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Yuan and Wen (2018) , the results of this test are presented in columns (1) and (2) of Panel A in
Table 10. We find negative and significant coefficients for our proxies of academic executives and
corporate litigation, being consistent with the baseline regression results. Second, we change the
14
definition of executives and limit their scope to CEOs, following Beladi et al. (2022). The results of
this test are presented in columns (3) and (4) of Panel A in Table 10. We also find negative and
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significant coefficients for our proxies of academic executives and corporate litigation, consistent
with the baseline regression results.
Table 10 about here
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4.6.2 Exclude samples during financial crisis
Considering the impact of the 2008 financial crisis on corporate litigation, we conducted
additional analysis by excluding the sample of economic crises that occurred from 2008 to 2009.
This exclusion allows us to examine the effects of academic executives on corporate litigation while
controlling for the impact of the financial crisis during that specific period. Consistent with the
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baseline regression results, we observe negative and statistically significant coefficients for our
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proxies of academic executives and corporate litigation in Panel B of Table 10. This indicates that
even after excluding the sample of economic crises from 2008 to 2009, the relationship between
academic executives and corporate litigation remains consistently negative and significant, which
are consistent with the baseline regression results.
4.6.3 Tobit model

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In the baseline regression, we measure litigation risk by dividing the litigation amount by total
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assets, removing the scale effect. To ensure the robustness and reliability of the results, we also use
the number of lawsuits to gauge litigation risk. Given that a significant portion of the lawsuit count
data has a value of 0, we employ a pooled Tobit model (Liu, 2018) . The dependent variable is the
lawsuit count, and the independent variable is academic executives. The results are presented in
Panel C of Table 10. The outcomes indicate that the coefficient of the independent variable,
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academic executives, remains significantly negative at the 1% level. This suggests that academic
executives can reduce the number of lawsuits. Therefore, our results are robust.
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5. Mechanism verification
5.1 Mediation effect - How academic executives reduce corporate litigation risk？
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In this paper, we posit that academic executives are more likely to strengthen internal controls
and reduce earnings management, which leads to lower corporate litigation risk. To establish
earnings management and internal controls as two channels underlying the relation between
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corporate litigation risk (AllVal) and academic executives (Academic1 and Academic2),
following (Baron and Kenny, 1986) ,we perform a series of mediation analyses. Prior literature
(e.g., (Lang et al., 2012)) has adopted this methodology to provide direct evidence on underlying
channels in other settings. We then construct the panel data using the following equation:
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(3)
AllVali,𝑡 = 𝛼0 + 𝛼1Academict𝑖,𝑡−1 + 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠 + 𝑌𝑒𝑎𝑟 + 𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦 + 𝜀𝑖,𝑡−1
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(4)
Mediatori,𝑡 = 𝛼0 + 𝛼1Academic𝑖,𝑡−1 + 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠 + 𝑌𝑒𝑎𝑟 + 𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦 + 𝜀𝑖,𝑡−1
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(5)
AllVali,𝑡 = 𝛼0 + 𝛼1Academic𝑖,𝑡−1 + 𝛼2𝑀𝑒𝑑𝑖𝑎𝑡𝑜𝑟𝑖,𝑡−1 + 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠 + 𝑌𝑒𝑎𝑟 + 𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦
+ 𝜀𝑖,𝑡−1
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To establish the mediation effect, the following three conditions must hold: (i) the independent
variable, academic executives (Academic1 and Academic2), must affect the dependent variable,
corporate litigation risk (AllVal), in Eq. (3); (ii) the independent variable, academic executives
(Academic1 and Academic2), must affect the mediator variable, Earnings Management (Absda) and
Internal Control(IconI), in Eq. (4); and (iii) the mediator variable, Earnings Management (Absda)
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and Internal Control(IconI) must affect the dependent variable, corporate litigation risk (AllVal), in
Eq. (5). If mediator mediates the relationship between academic executives and corporate litigation
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risk, then the effect of academic executives on corporate litigation risk must be less in Eq. (5) than
in Eq. (3) (Jin et al., 2022).
5.1.1 Internal control
Internal control, as an important component of modern enterprise management, can be traced

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back to its fundamental goal of promoting legitimate and compliant business operations while
mitigating various risks, particularly those associated with legal and litigation matters. The failure
of enterprise operations, distortion of accounting information, and non-compliant operations can be
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largely attributed to the lack or failure of internal control within the enterprise (Spira and Page,
2003). Academic experience enables executives to have greater self-discipline, thereby possessing
higher standards and awareness of social ethics and social responsibility, and to operate the company
in a legal and compliant manner. The more effective internal control is, the lower the number and
amount of lawsuits the company faces, and the lower the risk of litigation (Chen and Chen, 2019).
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Therefore, academic executives suppress corporate litigation by strengthening internal control.

To verify our hypothesis, we first examine the mediation effect of a firm’s Internal control.
Following Jin et al. (2022), we use the DIB Internal Control Index to measure the quality of internal
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control in enterprises.6 We report the test results in Panel A of Table 11. Column (1) and column
(4) of Panel A in Table 11 is the first-stage result of our mediation analysis. As discussed above, we
document a significantly negative association between corporate litigation risk in year t and
academic executives in year t-1. Column (2) and column (5) of Panel A in Table 11 reports the
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results of the second-stage mediation analysis. The coefficient on academic executives is positive
and significant when we use Internal control in year t as the dependent variable. In Column (3) and
column (6) of Panel A in Table 11, we include both academic executives and earnings management
as testing variables when we use corporate litigation risk as the dependent variable. We find that
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internal control is negatively related to corporate litigation risk. This is consistent with previous
scholars that find the more effective internal control is, the lower the number and amount of lawsuits
the company faces, and the lower the risk of litigation (Chen and Chen, 2019).
Importantly, though academic executives remain negatively and significantly associated with
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corporate litigation risk, coefficients of Academic1 and Academic2 (-0.0182, -0.0596) are
6DIB internal control index comes from the DIB Internal Control and Risk Management Database, focusing on internal control
and risk management for the Chinese listed firms. For details, please see http://www.dibdata.cn/
16
smaller in magnitude compared to the corresponding coefficient in Column 1 (-0.0202, -0.0643),
respectively. The mediation effect is equal to the decrease in the coefficient on academic executives
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that arises from including the internal control measure as an additional explanatory variable in the
corporate litigation risk model. Thus, the results support that firm internal control is an important
channel through which academic executives affect corporate litigation risk.
Table 11 about here
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5.1.2 Earnings Management
DuCharme et al. (2004) find that some companies engage in speculative earnings management
before stock issuance, which makes them susceptible to litigation. Academic executives, whether
based on their rigorous and cautious academic spirit or the improvement of their self-cultivation as
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teachers, have lower motivation to engage in earnings management when disclosing company
accounting information (Francis et al., 2015). As a result, the company’s earnings management level
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is relatively low, reducing the likelihood of the company being sued. Therefore, academic
executives suppress earnings management and litigation risks.
To verify our hypothesis, we first examine the mediation effect of a firm’s earnings
management. The quality of earnings is measured using the absolute value of abnormal accruals
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(Absda) and is based on Dechow et al. (1996). The abnormal accruals are obtained through
regression using a modified Jones model, conducted on an annual and industry-specific basis.
Taking the absolute value of these abnormal accruals serves as an alternative indicator for earnings
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quality. We report the test results in Table 11. Column (1) and column (4) of Panel B in Table 11 is
the first-stage result of our mediation analysis. As discussed above, we document a significantly
negative association between corporate litigation risk and academic executives. Column (2) and
column (5) of Panel B in Table 11 reports the results of the second-stage mediation analysis. The
coefficient on academic executives is negative and significant when we use earnings management
in year t as the dependent variable. Consistent with the view that academic executives, whether
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driven by their scholarly rigor and prudence or their commitment to self-cultivation as educators,
exhibit lower motivations for earnings management when disclosing company accounting
information, this result suggests that academic executives help reduce a firm’s earnings management.
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This significant result also confirms that the second condition of mediation analysis is satisfied.
In Column (3) and column (6) of Panel B in Table 11, we include both academic executives
and earnings management as testing variables when we use corporate litigation risk as the dependent
variable. We find that earnings management is positively related to corporate litigation risk,
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consistent with the finding of previous scholars - the occurrence probability of shareholder litigation
is positively correlated with the degree of earnings management (DuCharme et al. 2004).
Importantly, though academic executives remain negatively and significantly associated with
corporate litigation risk, coefficients of Academic1 and Academic2 (-0.0196, -0.0586) are
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smaller in magnitude compared to the corresponding coefficient in Column 1 (-0.0202,-0.0629),

respectively. The mediation effect is equal to the decrease in the coefficient on academic executives
that arises from including the earnings management measure as an additional explanatory variable
in the corporate litigation risk model. Thus, the results support that firm earnings management is an
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important channel through which academic executives affect corporate litigation risk.
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5.2 Moderating Effect - When does academic executives matter more for corporate
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litigation risk?
The results so far consistently show that academic executives lead to lower corporate litigation
risk. It is plausible, however, that the effects of academic executives on corporate litigation risk
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would vary with circumstances. We examine here whether the effect of academic executives on
corporate litigation risk depends on the legal environment, market competition, and financing
constraints from a macro-level, meso-level, to micro-level perspectives (Girardone et al., 2021) .
5.2.1 Legal environment
Legal environment can affect the relationship between academic executives and corporate
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litigation. Internally, companies will engage in earnings management to gain control and personal
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gain, while strengthening investor legal protection will limit the ability of insiders to gain control
and personal gain, weakening their motivation for earnings management. Empirical results also
indicate that a higher level of rule of law leads to a lower level of earnings management (Leuz et
al., 2003). Positive correlation between earnings management and corporate litigation (DuCharme
et al., 2004). Legal protection and enforcement can effectively reduce litigation risks caused by
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breach of debt contracts (Gul et al., 2002). Therefore, a high-quality legal environment can
strengthen the inhibitory effect of academic executives on corporate litigation.
To verify the hypothesis, following previous literature (Fan et al., 2019) , we use the quality
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of the legal environment as a moderating variable.7 Specifically, we assess the interaction effects
between the factors of academic executives and legal environment. The results, shown in columns
(1) and columns (2) of Table 12, indicate that legal environment matters. The coefficient on the
interaction term Academic2* legal environment is negative and significant at less than 5% level.
The evidence shows that academic executives have a larger moderating effect on corporate litigation
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when the quality of the legal environment is better.

Table 12 about here
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5.2.2 Market Competition
Market Competition can affect the relationship between academic executives and corporate
litigation. In highly competitive industries, it is relatively easy for the board of directors to identify
unsuitable CEOs, leading to a higher frequency of CEO resignations. To some extent, it indicates
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that the product market, as a control mechanism, has played an effective supervisory and restrictive
role on the company's CEO, and there is a governance effect (DeFond and Park, 1999, Goyal and
Park, 2002) . Therefore, this article believes that low market competition will weaken the inhibitory
effect of academic executives on corporate litigation.
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To verify the hypothesis, we use market competition as a moderating variable (Kong et al.,
8
2022). Specifically, we assess the interaction effects between the factors of academic executives
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7 The data on the regional legal environment in this article comes from the "Development of Market Intermediary Organizations
and Legal System Environment" index in the "China Marketization Index -2021 Report on the Relative Process of Marketization
in Various Regions" compiled by Fan Gang.
8 The HHI calculated based on an industry category code released by the China Securities Regulatory Commission is: HHI =
∑N 2
i (Xi/A) 。Xi represents the main business income of market entity i, and A is the sum of the main business income of all
enterprises in the industry. The smaller the HHI index, the higher the level of market competition.
18
and market competition degree. The results, shown in columns (3) and (4) of Table12, indicate that
the coefficient on the interaction term Academic1*Market Competition is positive and significant
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at the 5% significance level. Specifically, we find that academic executives are less effective in
moderating corporate litigation when the market competition is lower.
5.2.3 Financial constraints
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Financial constraints can affect the relationship between academic executives and corporate
litigation. Enterprises with financing constraints systematically rely on internal cash flows for their
funding sources. Enterprises without financing constraints are prone to overinvestment, while
enterprises with financing constraints have a less obvious tendency towards overinvestment (Song
et al., 2015) . Overinvestment may increase the risk of corporate litigation. In addition, the cost of
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earnings manipulation caused by financing constraints is relatively high, which to some extent
suppresses the earnings management behavior of enterprises (Lu and Zhang, 2014) . Therefore, a
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high degree of financing constraints is more likely to strengthen the inhibitory effect of academic
executives on corporate litigation.
To verify the hypothesis, we use KZ as the moderating variable.9 Specifically, we assess the
interaction effects between the factors of academic executives and financial constraints. The results,
shown in columns (5) and columns (6) of Table12, indicate that Market Competition matters. The
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coefficient on the interaction term Academic2* financial constraints is negative and significant at
less than 1% level. The evidence shows that academic executives have a larger moderating effect
on corporate litigation when financing constraints are stronger.
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6. Further analysis
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6.1 What kind of firms benefit more from academic executives?
In this section, we examine the potential heterogeneity in the effect of academic executives
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on corporate litigation by considering company size and the degree of information asymmetry. By
testing these perspectives, we aim to explore whether the relationship between academic executives
and corporate litigation varies depending on the size of the company and the level of information
asymmetry present. This analysis allows us to assess whether certain factors modify or interact with
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the impact of academic executives on corporate litigation outcomes.
6.1.1 Enterprise size
Firstly, we examine the impact of enterprise size on the relationship between academic
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executives and corporate litigation. Smaller companies are more likely to have significant
deficiencies in the disclosure of internal control information (Doyle et al., 2007), making them more
susceptible to litigation. The academic executives, indicated by their background of working in
universities and research institutes, is often associated with higher moral standards and a sense of
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social responsibility (Baumgarten, 1982). This could lead to more lawful and compliant operation
9Following literature (Kaplan & Zingales, 1997), we use variables such as operating net cash flow, cash dividends, cash holdings,
asset liability ratio, and Tobin's Q to construct the KZ index (KZ). The larger the KZ index value, the more severe the financing
constraints faced by the enterprise.
19
of the company, which is likely to reduce litigation risk. Therefore, the inhibitory effect of academic
executives on corporate litigation will be more significant in small-scale enterprises. To test the
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heterogeneity of enterprise size, we followed the approach used in previous studies (Dang et al.,
2018) . We divided the sample into two groups based on whether the total assets of the enterprises
exceed the median of the annual sample enterprise total assets: large enterprises and small
enterprises. The group regression results are shown in Panel A of Table 13. The regression
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coefficient is significantly negative in the small business group, but not significant in the large
business group, and the coefficient value is also larger in the small business group. The above test
results indicate that academic executives have a more significant inhibitory effect on corporate
litigation in small businesses, consistent with expectations.
Table 13 about here
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6.1.2 Information Asymmetry
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Secondly, we examine the impact of information asymmetry on the relationship between
academic executives and corporate litigation. Corporate information disclosure plays an essential
role in reducing the problem of information asymmetry between company managers and
shareholders. The lower the quality of information disclosure, the higher the litigation risk the
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company faces in subsequent years (Hanley and Hoberg, 2012). Academic research demands
rigorous and precise work for publications and presentations, and academic executives are more
likely to possess rigorous logical and analytical abilities, making their information disclosure more
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credible (Jiang and Murphy, 2007). Therefore, the inhibitory effect of academic executives on
corporate litigation will be more significant in enterprises with high levels of information
asymmetry. To test the heterogeneity of information asymmetry, we divided the sample into two
groups based on the median of corporate information transparency (Opaque): high and low levels
of information asymmetry. We used the sum of the absolute value of discretionary accruals for three
accounting years and discretionary accruals calculated with the modified Jones model (Dechow et
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al., 1996). The group regression results are shown in Panel B of Table 13. The regression coefficient
is significantly negative in the group with a high degree of information asymmetry but not
significant in the group with a low degree of information asymmetry, and the coefficient value is
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also larger in the group with a high degree of information asymmetry. The above test results indicate
that the inhibitory effect of academic executives on corporate litigation is more significant in the
group with a high degree of information asymmetry, consistent with our expectations.
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6.2 What kind of academic experience has a better effect on lowing corporate
litigation?
ep
In this study, we acknowledge that academic experience can be categorized into three distinct
types: teaching experience in universities, working experience in research institutions, and research
experience in associations, as indicated by Jin et al. (2022). We aim to investigate whether similar
distinctions exist in the effects of these three types of academic experiences on corporate litigation.
Pr
Considering the possibility that some executives in our sample possess more than one type of
academic experience (e.g., university teaching experience and research institution experience), we
have excluded such cases from our empirical testing. To facilitate the comparison of the coefficients
20
associated with the three types of academic experience, we have included all three categories
(university academic experience, research institution academic experience, and research association
ed
academic experience) in our empirical model. By adopting this approach, we aim to examine the
potential variations in the impact of these different types of academic experiences on corporate
litigation. This analysis will provide valuable insights into the specific contributions and nuances of
each type of academic experience in shaping corporate litigation outcomes. Panel C of Table 13
iew
presents the results of our analysis. The findings suggest that teaching experience in universities has
the most significant impact in reducing corporate litigation. This outcome may be attributed to the
influence of societal expectations and norms towards Chinese educators, as reflected in factors such
as "teachers, therefore preaching and receiving education to dispel doubts" and "teachers should
lead by example and become moral models for others" (Quan and Li, 2017). Individuals with
v
teaching experience in universities tend to uphold higher moral standards and possess a stronger
sense of social responsibility, which translates into promoting the legitimate and compliant
re
operation of enterprises. The study by Cho et al. (2017) also supports this notion, as they found
that appointing directors from academic backgrounds resulted in higher corporate social
responsibility performance ratings. These findings collectively suggest that individuals with
teaching experience in universities possess qualities and values that contribute to responsible
corporate behavior, potentially explaining their greater impact in reducing corporate litigation.
er
6.3 In what circumstances can academic executives mitigate litigation risk?
pe
We aim to investigate the circumstances in which academic executives can effectively reduce
a company’s litigation risk. We divide our sample into two groups based on whether the CEO has
an academic background. We then examine the impact of academic executives on the litigation risk
for each group. In the first and third columns, the CEOs have an academic background, while in the
second and fourth columns, the CEOs do not have an academic background. In Panel D of Table
ot
13, the results indicate that in the group where the CEO lacks an academic background, academic
executives exhibit a stronger ability to mitigate litigation risk. When the CEO lacks an academic
background, academic executives may bridge the gap by bringing valuable professional knowledge
tn
and expertise. Their academic background could make them more knowledgeable in legal matters
and related fields, enabling them to better manage the company's legal affairs and reduce legal risks.
In this scenario, academic executives provide valuable specialized insights into the company's legal
matters to help mitigate potential litigation risks. They can offer decision support and professional
rin
guidance to the CEO (Reimer et al., 2018) , aiding the company in better risk management. They
can actively participate in the formulation of the company's legal strategies, offer legal advice, and
assist in establishing compliance measures to reduce the likelihood of legal issues. This is
particularly crucial for CEOs without academic backgrounds.
ep
7. Conclusion
Pr
This article investigates whether academic executives play a role in reducing corporate
litigation using a 2008-2020 sample of Shanghai and Shenzhen A-share listed companies in China.
We find that academic executives significantly reduce corporate litigation and academic executives
21
are more influential when there are more than 2 academic executives in the same boardroom. This
association is robust to a series of robustness checks, and we use PSM, PSM-DID, lagged variables,
ed
instrumental variable analysis, high-dimensional fixed effects and placebo tests, the above
conclusions are still valid. The mechanism through which academic executives affect corporate
litigation stems from intensifying the quality of internal control and reducing earnings management.
The academic executives affect a company's ability to litigate, which is regulated by the quality of
iew
the legal environment, market competition, and financing constraints. The benefit of academic
executives is more pronounced for small firms and firms with a high degree of information
asymmetry. Further analyses show that the effect of academic executives on corporate litigation is
effective only when executives have experience teaching in universities (neither experience in
scientific research institutions nor research experience of the association). Our findings shed new
v
light on the value of academic executives for firm risk and corporate governance.
re
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Appendix A. Variable definitions

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Variable Definition
AllVal Ln (1+ total amount money of lawsuits divided by firm’s total assets)
Academic1 The proportion of the number of executives with academic experience in a
company in year t to the total number of executives teams
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Academic2 An indicator variable which = 1 if a firm has two or more executives with academic
experience in its top management team, 0 otherwise
Size The natural logarithm of total assets at the end of the period.
MB The ratio of market value divided by the book value.
Lev The ratio of the total debts to total assets.
Pr
ROA The net income divided by total assets.

Ret The average of the daily stock returns during a one-year window.
Sigma The standard deviation of the daily stock returns during a one-year window.
26
FirmAge The natural logarithm of years of establishment of the company plus one.
Dual A dummy variable which equals one if the firm’s board chair is also its CEO and zero
ed
otherwise.
Board The natural logarithm of the number of directors on a firm's board plus one.
Indep The proportion of independent directors in a board.
Shrcr1 The percentage of shares owned by the largest shareholder.
Cashflow The net cash flow generated from operating activities divided by total assets.
iew
Growth The increased percentage of operating revenue.
Mshare The number of the shares held by management divided by the total shares in issue.
INST The number of shares held by institutional investors divided by the total shares in issue.
Opaque The sum of absolute value of discretionary accruals for three accounting years and
discretionary accruals calculated with the modified Jones model (Dechow et al., 1995).
Internal Control Following (Dai & Shen, 2014) ， we use the DIB Internal Control Index to measure the
v
quality of internal control in enterprises.
Earnings We use the absolute value of residual from modified Jones model to measure accruals
Management earnings management (Absda). Modified Jones model is constructed by Dechow et al.
re
(1995).
legal The data on the regional legal environment in this article comes from the "Development of
environment Market Intermediary Organizations and Legal System Environment" index in the "China
Marketization Index -2021 Report on the Relative Process of Marketization in Various
Regions" compiled by Fan Gang.
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HHI The HHI calculated based on an industry category code released by the China Securities
2
Regulatory Commission is: HHI = ∑N i (Xi/A) 。Xi represents the main business income of
market entity i, and A is the sum of the main business income of all enterprises in the
industry. The smaller the HHI index, the higher the level of market competition.
pe
KZ Following (Kaplan & Zingales, 1997) we ue variables such as operating net cash flow, cash
dividends, cash holdings, asset liability ratio, and Tobin's Q to construct the KZ index (KZ).
The larger the KZ index value, the more severe the financing constraints faced by the
enterprise.
The average we calculate the average years of education per capita by converting the population education
years of structure data published in the annual "China Population Statistics Yearbook" over the years.
education per
ot
capita
tn
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ep
Pr
27
Table 1
Sample distribution and descriptive statistics
Panel A distribution of academic executives
ed
Executives Freq.
No.of Academic Execs
0 17,455
1 6,428
iew
2 2,090
3 800
4 300
5 113
6 37
7 26
v
8 7
9 8
re
Academic Execs=1
0 6,428
1 20,836
Academic Execs>=2 er
0 23,883
1 3,381
Distribution of different academic experience
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University 510
Research Institution 551
Research Association 945
University & Research Institution 76
University & Research Association 114
ot
Research Institution & Research Association 97

University & Research Institution & Research 48
Association
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Panel B descriptive statistics

Variable N Mean SD Min Median Max
AllVal 27,264 0.127 0.912 0 0 14.67
Academic1 27,264 0.0855 0.137 0 0 0.600
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Academic2 27,264 0.124 0.330 0 0 1

Size 27,264 22.09 1.246 19.49 21.91 26.36
Lev 27,264 0.424 0.206 0.0291 0.417 0.927
ROA 27,264 0.0378 0.0653 -0.493 0.0378 0.220
ep
MB 27,264 3.920 2.802 1.158 3.170 33.82

Ret 27,264 0.00300 0.0111 -0.0289 0.00170 0.0688
Sigma 27,264 0.0664 0.0266 0.0207 0.0603 0.233
FirmAge 27,264 2.825 0.360 1.099 2.890 3.583
Pr
Dual 27,264 0.272 0.445 0 0 1

Board 27,264 2.247 0.173 1.792 2.303 2.773
Indep 27,264 0.374 0.0532 0.250 0.333 0.600
28
Shrcr1 27,264 34.47 14.71 8.259 32.33 75.42
Cashflow 27,264 0.0468 0.0709 -0.224 0.0458 0.290
Growth 27,264 0.169 0.408 -0.654 0.107 3.808
Mshare 27,264 0.132 0.197 0 0.00410 0.705
INST 27,264 0.436 0.244 0.000800 0.457 0.919
This Table reports descriptive statistics of the main variables defined in Appendix A. during the sample period 2008–
2020. All continuous variables are winsorized at 1% at both tails.
ed
Table 2
Univariate analysis.
iew
Without academic exp With academic exp Difference between t-Value
N=23,883 N=3,389 means
AllVal 0.135 0.0732 0.0618 5.1578***
Size 22.08 22.14 -0.0608 -2.5171**
v
Lev 0.429 0.385 0.0437 12.0034***
ROA 0.0367 0.0454 -0.00870 -7.8513***
re
MB 3.938 3.791 0.148 3.2811***
Ret 0.00290 0.00330 -0.000300 -1.7370*
Sigma 0.0664 0.0660 0.000400 0.851
FirmAge 2.828 2.800 0.0283 4.1807***
Dual 0.257
er 0.384 -0.127 -14.3919***
Board 2.245 2.264 -0.0190 -5.9144***
pe
Indep 0.374 0.374 -0.000600 -0.599
Shrcr1 34.72 32.66 2.057 7.6104***
Cashflo 0.0470 0.0460 0.00100 0.828
w
Growth 0.167 0.182 -0.0152 -2.4121**
ot
Mshare 0.126 0.177 -0.0512 -13.4882***

INST 0.440 0.413 0.0268 5.8680***
This Table reports the results of univariate analysis on the mean difference of the corporate litigation measure AllVal
tn
between firms having managers with academic experience and firms having no managers with academic experience.
The t-values for mean differences are based on t-tests. *, **, and ***indicate significance at the 0.10, 0.05 and 0.01
level (two-tailed), respectively.
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Table 3
Correlation analysis.
AllVal Academic1 Academic2 Size Lev ROA MB
AllVal 1
ep
Academic1 -0.0142** 1
Academic2 -0.0223*** 0.7571*** 1
Size -0.0407*** -0.0466*** 0.0146** 1
Lev 0.0618*** -0.1147*** -0.0708*** 0.4950*** 1

Pr
ROA -0.2056*** 0.0440*** 0.0441*** -0.00950 -0.3470*** 1
MB 0.0948*** -0.0235*** -0.0171*** -0.0552*** 0.3850*** -0.1162*** 1
Ret -0.0260*** 0.0172*** 0.0103* -0.0646*** -0.0324*** 0.1353*** 0.2982***
29
Sigma 0.0415*** 0.0150** -0.00470 -0.2433*** -0.0376*** -0.0598*** 0.2167***
FirmAge 0.0604*** -0.0497*** -0.0256*** 0.1915*** 0.1592*** -0.1016*** 0.0929***
Dual 0.00340 0.1560*** 0.0938*** -0.1601*** -0.1455*** 0.0330*** -0.0220***
Board -0.0374*** -0.0242*** 0.0369*** 0.2365*** 0.1453*** 0.0225*** -0.0246***
Indep 0.00900 0.0292*** 0.00210 0.0123** -0.0148** -0.0207*** 0.0241***
Shrcr1 -0.0657*** -0.0603*** -0.0461*** 0.1667*** 0.0528*** 0.1314*** -0.0526***
ed
Cashflow -0.0319*** -0.00260 -0.00460 0.0385*** -0.1737*** 0.3510*** -0.0302***
Growth -0.0510*** 0.0171*** 0.0125** 0.0407*** 0.0315*** 0.2164*** 0.0402***
Mshare -0.0250*** 0.1520*** 0.0860*** -0.3190*** -0.3249*** 0.1448*** -0.1515***
INST -0.0449*** -0.0921*** -0.0366*** 0.3995*** 0.2065*** 0.0990*** 0.0586***
iew
Ret Sigma FirmAge Dual Board Indep Shrcr1
Ret 1
Sigma 0.4804*** 1
FirmAge -0.00780 -0.0834*** 1
Dual 0.0331*** 0.0649*** -0.0743*** 1
v
Board -0.0395*** -0.0848*** -0.0125** -0.1783*** 1
Indep 0.0162*** 0.0203*** 0.00300 0.1160*** -0.5204*** 1
re
Shrcr1 -0.00650 -0.0461*** -0.1288*** -0.0436*** 0.0150** 0.0424*** 1
Cashflow 0.1021*** -0.0351*** 0.0160*** -0.00910 0.0376*** -0.0161*** 0.0730***
Growth 0.0727*** 0.0377*** -0.0675*** 0.0235*** -0.00710 0.00630 0.00830
Mshare 0.0542*** 0.1120*** -0.2128***

er 0.2558*** -0.1976*** 0.0781*** -0.0929***
INST 0.00160 -0.0995*** 0.0155** -0.1977*** 0.2234*** -0.0677*** 0.5005***
Cashflow Growth Mshare INST

pe
Cashflow 1
Growth 0.0125** 1
Mshare 0.00510 0.0616*** 1
INST 0.1028*** 0.0332*** -0.6599*** 1
This Table reports the correlation coefficients on the main variables defined in Appendix A. This Table presents the
Pearson correlation coefficients. *, **, and ***indicate significance at the 0.10, 0.05 and 0.01 level (two-tailed),
ot
respectively.
tn
Table 4
Academic executives and corporate litigation risk - Baseline regressions.
(1) (2) (3) (4)
rin
AllValt+1 AllValt+1 AllValt+1 AllValt+1

Academic1t -0.0267*** -0.0204***
(-3.5459) (-2.7183)
Academic2t -0.0915*** -0.0646***
ep
(-5.6913) (-4.1371)
Sizet -0.0104 -0.0092
(-0.8175) (-0.7222)
Levt -0.0461*** -0.0463***
Pr
(-2.9119) (-2.9380)
ROAt -0.2564*** -0.2563***
(-8.0422) (-8.0381)
30
MBt 0.0973*** 0.0973***
(5.2532) (5.2579)
Rett -0.0799*** -0.0798***
(-5.2938) (-5.2900)
Sigmat 0.0651*** 0.0650***
(4.1097) (4.1072)
ed
Indept -0.0110 -0.0110
(-1.2677) (-1.2747)
FirmAget -0.0113 -0.0105
(-1.3811) (-1.2747)
iew
Cashflowt 0.0395*** 0.0393***
(3.7099) (3.6893)
Dualt 0.0042 0.0028
(0.2136) (0.1477)
Boardt -0.0132 -0.0126
(-1.2149) (-1.1691)
v
Shrcrlt -0.0323*** -0.0323***
(-3.2680) (-3.2678)
re
Growtht 0.0149 0.0148
(1.5016) (1.4851)
Msharet 0.0105 0.0101
er (0.7522) (0.7251)
INSTt 0.0228 0.0228
(1.5758) (1.5759)
Constant 0.0039 0.0191* 0.0153* 0.0276**
pe
(0.4758) (1.7750) (1.6577) (2.4319)
Year FE Yes Yes Yes Yes
Industry FE Yes Yes Yes Yes
Observation 22,387 22,387 22,387 22,387
Adj R-square 0.0168 0.0681 0.0170 0.0682
ot
This Table presents the results of the impact of academic executives on corporate litigation. The dependent variable
is AllVal and the test variables are Academic1 and Academic2. All independent variables are lagged by one year. t-
Statistics in the brackets are based on standard errors adjusted for clustering at the firm level. *, ** and *** indicate
significance at the 0.10, 0.05 and 0.01 level (two-tailed), respectively. All variables are defined in Appendix A.
tn
Table 5
Academic executives and corporate litigation risk- Critical mass and Academic Power.
rin
(1) (2) (3) (4)

Critical Mass (≥2) -0.0915*** -0.0646***
(-5.6913) (-4.1371)
ep
Critical Mass (=1) -0.0072 0.0008

(-0.3544) (0.0399)
Constant 0.0153* 0.0276** 0.0057 0.0205*
(1.6577) (2.4319) (0.6069) (1.8052)
Pr
Control Variables Yes Yes Yes Yes

31
Observation 22,387 22,387 22,387 22,387
Adj R-square 0.0170 0.0682 0.0162 0.0678
The Table reports the results from the fixed-effect model for the corporate litigation in year t. The key variable is
Critical Mass (≥k), which is a dummy variable indicating that the number of Academic executives is ≥k. All
independent variables are lagged by one year. Standard errors clustered at the firm level are reported in parentheses.
***, **, * denote significance at the 1%, 5%, 10% level, respectively. Definitions of the variables are provided in
Appendix A.
ed
Table 6
Entropy Balance and PSM-DID test.
iew
(1) (2) (3) (4)
Academic1t -0.0676***
(-4.00)
Academic2t -0.0178
(-1.63)
v
Treatt×Postt -0.0939** -0.0782**
(-2.5562) (-2.3025)
re
Constant 0.0178 0.0216 0.0190 0.0405***
(0.5856) (1.3472) (1.5733) (2.7228)
Control Variables Yes Yes No Yes
Year FE Yes er Yes Yes Yes
Observation 22,398 22,398 14,663 14,663
Adj R-square 0.0836 0.0655 0.0183 0.0781
pe
Columns (1) and (2) of Table 6 reports the regression results using Entropy Balance. The specification of the model
is the same as model (1) described in Section 3.3. The dependent variable is AllVal and the test variables are
Academic1 and Academic2. Columns (3) and (4) of Table 6 report the PSM-DID results. The dependent variable is
AllVal and the test variables is the interaction term of Treat and Post. All independent variables are lagged by one
year. t-Statistics in the brackets are based on standard errors adjusted for clustering at the firm level. *, ** and ***
indicate significance at the 0.10, 0.05 and 0.01 level (two-tailed), respectively. All variables are defined in Appendix
A.
ot
Table 7
tn
Panel A: The independent variable lagged by two years

(1) (2) (3) (4)
rin

Academic1t -0.0282*** -0.0245***
(-3.3876) (-2.8991)
Academic2t -0.1035*** -0.0876***
ep
(-5.7319) (-4.9380)
Constant 0.0130 0.0115 0.0261** 0.0231*
(1.4468) (1.0233) (2.5473) (1.9230)
Pr

Observation 19,177 19,177 19,177 19,177
32
Adj R-square 0.0163 0.0377 0.0166 0.0379
Panel B: The independent variable lagged by three years
(1) (2) (3) (4)
Academic1t -0.0326*** -0.0312***
(-3.5031) (-3.2517)
ed
Academic2t -0.1163*** -0.1055***
(-5.1782) (-4.6884)
Constant 0.0313*** 0.0230* 0.0463*** 0.0375***
(3.1025) (1.8308) (3.9784) (2.7944)
iew
Observation 16,332 16,332 16,332 16,332
Adj R-square 0.0176 0.0307 0.0179 0.0309
The results of the independent variable lagged by two years and three years
v
This Table presents the results of the impact of academic executives on corporate litigation. The dependent variable
is AllVal and the test variables are Academic1 and Academic2. In Panel A, all independent variables are lagged by
re
two years. In Panel B, all independent variables are lagged by three year. t-Statistics in the brackets are based on
standard errors adjusted for clustering at the firm level. *, ** and *** indicate significance at the 0.10, 0.05 and 0.01
level (two-tailed), respectively. All variables are defined in Appendix A.
Table 8
er
The results of the instrumental variable analysis.
(1) (2) (3) (4)
Academic1t+1 Academic2t+1 AllValt+1 AllValt+1
pe
First stage of 2SLS Second stage of 2SLS
IV1t 1.060*** 0.204***
(9.98) ( 5.70)
IV2t 0.058*** 0.012***
ot
( 6.77) ( 4.38)
Academic1t -0.167**
(-1.94)
tn
Academic2t -0.801**
( -1.84)
rin

Observation 17,173 17,173 17,173 17,173
Adj R-square 0.1025 0.0741 0.0549 0.0249
ep
F-value 82.59 27.34

This Table reports the estimated results from the two-stage least square (2SLS) instrument variables regressions.
The first instrument variable, “IV1”, is the proportion of academic executives from other companies in the same
industry in the previous year. The second instrument variable, “IV2”, is the average schooling years. The t-statistics
Pr
based on standard errors clustered at the firm level are reported in the parentheses. *, **, and *** denote the
significance at the 10%, 5%, and 1% level, respectively.
33
Table 9
The results of high-dimensional Fixed Effects.
(1) (2) (3) (4)
Academic1t -0.0309* -0.0308*
ed
(-1.6690) (-1.6674)
Academic2t -0.0713** -0.0682**
(-2.0081) (-1.9613)
Constant 0.0038*** 0.0151 0.0128*** 0.0241**
iew
(60.1396) (1.2903) (2.9041) (2.0092)
(-2.0081) (-1.9613)
Control Variables No Yes No Yes
Firm FE Yes Yes Yes Yes
Year×Industry FE Yes Yes Yes Yes
Observation 22,196 22,196 22,196 22,196
v
Adj R-square 0.1388 0.1651 0.1387 0.1650
re
This Table presents the regression results for academic executives’ influence on corporate litigation including high-
dimensional fixed effects at the firm and year-industry level. Variable definitions are provided in the appendix A. t-
statistics are reported in parentheses and ***, ** and * indicate significance at the 1%, 5% and 10% level respectively.
Standard errors are clustered at firm level.

er
pe
ot
(a) (b)
tn
Fig. 1. Placebo tests over time.

This figure presents the results from a set of placebo tests. In each sample, we randomly assign academic executives
to firms and then perform a standard regression. Fig. 1(a) plots the distribution of 500 estimated coefficients and
rin
their associated t-values for the regression Academic1 on corporate litigation. Similarly, Fig. 1(b) plots the
distribution of 500 estimated coefficients and their associated t-values for the regression Academic2 on corporate
litigation.
ep
Table 10
Robustness tests.
Panel A: Robustness tests of replacing explanatory variables
(1) (2) (3) (4)
Pr

nAcademic1t -0.0308*** -
0.0184***
34
(-4.4711) (-2.7694)
Academic3t - -0.0317*
0.0548***
(-2.8692) (-
1.7475)
Constant 0.0212** 0.0299** 0.0115 0.0247*
ed
*
(2.1141) (2.5403) (1.1820) (2.1148)
iew
Observation 22,387 22,387 21,725 21,725
Adj R-square 0.0170 0.0680 0.0166 0.0652
Panel B: Robustness tests of excluding samples during financial crisis
(1) (2) (3) (4)
v
Academic1t -0.0272*** -0.0204***
(-3.4698) (-2.6152)
re
Academic2t - -0.0644***
0.0920***
(-5.5895) (-4.0249)
Control Variables No er Yes No Yes
Constant 0.0065 0.0237** 0.0183* 0.0324***
pe
(0.7534) (2.0631) (1.8785) (2.6863)
Observation 20,323 20,323 20,323 20,323
Adj R-square 0.0159 0.0707 0.0161 0.0708
Panel C: Robustness tests of executives without academic experience
(1) (2) (3) (4)
ot

Academic1t 0.0267*** 0.0203***
(3.5650) (2.7228)
tn
Academic2t -0.0110 0.0132

(-0.0760) (0.0947)
rin

Constant 0.0039 0.0191* 0.0148 0.0075
(0.4739) (1.7799) (0.1027) (0.0540)
ep
Observation 22,398 22,398 22,398 22,398

Adj R-square 0.0168 0.0681 0.0162 0.0678
Panel D: Robustness tests of Tobit model
(1) (2)
Pr
AllValt+1 AllValt+1
Academic2t -0.1571*** -0.1138***
35
(-2.6270) (-2.5836)
Control Variables No Yes
Year FE Yes Yes
Industry FE Yes Yes
Constant 0.2428* -0.3531
ed
(1.9396) (-1.0061)
Observation 22,388 22,388
Columns (1) and (2) of Panel A in this Table reports the regression results for Academic executives' influence on
corporate litigation risk. The dependent variable is AllVal and the test variables is nAcademic1,which is a proxy for
the number of academic executives in year t. Columns (3) and (4) of Panel A in this Table reports the regression
iew
results for Academic CEOs' influence on corporate litigation risk. The dependent variable is AllVal and the test
variables is Academic3,which is a proxy for CEO with academic experience in year t. Panel B of this Table presents
the regression results for Academic executives' influence on corporate litigation risk over the period 2010–2020.
Panel C of this Table presents the regression results for tobit model. The dependent variable is the number of lawsuits,
and the independent variable is academic executives. All independent variables are lagged by one year. t-Statistics
in the brackets are based on standard errors adjusted for clustering at the firm level. *, ** and *** indicate
v
Table 11
re
Channel tests
Panel A: The results on the mediation effect of Internal control
(1) (2) (3) (4) (5) (6)
AllValt+1 IConIt+1 AllValt+1 AllValt+1 IConIt+1 AllValt+1
Academic1t -0.0202***
er
0.0183** -0.0182**
(-2.6109) (2.4006) (-2.3718)
Academic2t -0.0643*** 0.0480** -0.0596***
pe
(-3.9885) (2.1637) (-3.7665)
IConIt -0.1241*** -0.1241***
(-5.4175) (-5.4373)
Control variables Yes Yes Yes Yes Yes Yes
Year FE Yes Yes Yes Yes Yes Yes
ot
Industry FE Yes Yes Yes Yes Yes Yes

Constant 0.0211* -0.0118 0.0286** 0.0294** -0.0183* 0.0363***
(1.9323) (-1.2081) (2.5211) (2.5615) (-1.8022) (3.0591)
tn
Observations 21,531 21,531 21,531 21,531 21,531 21,531

Adjusted R2 0.0690 0.1512 0.0772 0.0690 0.1511 0.0773
Panel B: The results on the mediation effect of earnings management
(1) (2) (3) (4) (5) (6)
rin
AllValt+1 Absdat+1 AllValt+1 AllValt+1 Absdat+1 AllValt+1

Academic1t -0.0202*** -0.0134* -0.0196**
(-2.5944) (-1.6526) (-2.5271)
-0.0629*** -0.0492** -0.0586***
ep
Academic2t
(-3.8991) (-2.0660) (-3.6723)
Absdat 0.0687*** 0.0685***
(6.2220) (6.2009)
Pr

36
Constant 0.0220** -0.0271*** 0.0223** 0.0303*** -0.0209** 0.0300***
(1.9889) (-2.7784) (2.0240) (2.5909) (-2.0615) (2.5941)
Observations 21,017 21,017 21,017 21,017 21,017 21,017
Adjusted R2 0.0679 0.0699 0.0716 0.0679 0.0700 0.0716
Panel A of this Table presents the results on the mediation effect of earnings management on the relationship between
executives with academic experience and the corporate litigation risk. The independent variables AllVal, and the
ed
independent variables are Academic1 and Academic2, the mediator variable is absda. Panel B of this Table
presents the results on the mediation effect of Internal control on the relationship between executives with
academic experience and the corporate litigation risk. The dependent variable is AllVal, and the independent
variables are Academic1 and Academic2, the mediator variable is IConI.All independent variables are lagged
iew
by one year. t-Statistics in the brackets are based on standard errors adjusted for clustering at the firm level.*, ** and
*** indicate significance at the 0.10, 0.05 and 0.01 level (two-tailed), respectively. All variables are defined in
Appendix A.
Table 12
v
Moderating effect on legal environment, Market Competition and Financial constraints.
(1) (2) (3) (4) (5) (6)
re
AllValt+1 AllValt+1 AllValt+1 AllValt+1 AllValt+1 AllValt+1
Academic1t -0.0208*** -0.0192*** -0.0199**

(-2.7363) (-2.5848) (-2.4501)
Academic2t -0.0664*** -0.0624*** -0.0696***
er (-4.1745) (-3.9737) (-4.1356)
lawenvirt 0.0039 0.0083
(0.3823) (0.7708)
pe
HHIt -0.0287* -0.0331**
(-1.9008) (-2.1061)
KZt -0.0343** -0.0279*
(-2.1279) (-1.6948)
Academic1t-
-0.0136
ot
×lawenvirt
(-1.5949)
-0.0383**
tn
Academic2t×lawenvirt
(-2.2246)
Academic1t ×HHIt 0.0137**
(1.9862)
rin
Academic2t ×HHIt 0.0303*

(1.6990)
Academic1t ×KZt 0.0014
(0.1763)
ep
-0.0468***
Academic2t ×KZt
(-3.1979)
Pr

Constant 0.0213* 0.0291** 0.0198* 0.0276** 0.0225** 0.0307***
37
(1.9187) (2.4940) (1.8326) (2.4319) (2.0333) (2.6495)
Observations 22,387 22,387 22,383 22,383 21,532 21,532
Adjusted R2 0.0682 0.0682 0.0684 0.0684 0.0692 0.0694
Columns (1) and columns (2) of Table12, presents the results on the moderating effect of legal environment on the
relationship between executives with academic experience and the corporate litigation risk. The key variable of
interest is the interaction of Academic1*Lawenvir and Academic2*Lawenvir. Columns (3) and columns (4) of
Table12, presents the results on the moderating effect of market competition degree on the relationship between
ed
executives with academic experience and the corporate litigation risk. The key variable of interest is the interaction
of Academic1*HHI and Academic2*HHI. Columns (5) and columns (6) of Table12, presents the results on the
moderating effect of financial constraints on the relationship between executives with academic experience and the
corporate litigation risk. The key variable of interest is the interaction of Academic1*KZ and Academic2*KZ. All
independent variables are lagged by one year. All models include industry fixed effects and year fixed effects. t-
Statistics in the brackets are based on standard errors adjusted for clustering at the firm level.*, ** and *** indicate
iew
Table 13
What kind of firms benefit more from executives with academic experience and what type of
academic experience can reduce corporate litigation.
v
Panel A: What kind of firms benefit more from executives with academic experience
(1) (2) (3) (4)
re
Academic1t -0.0072 -0.0305***

(-0.7680) (-2.8555)
Academic2t er -0.0330 -0.0949***
(-1.5337) (-4.1964)
Control Yes Yes Yes Yes
Variables
pe
Constant 0.0242 0.0586** 0.0205 0.0458*
(1.3335) (2.1719) (1.1682) (1.7326)
Observation 11,074 11,313 11,074 11,313
Adj R-square 0.0398 0.0891 0.0397 0.0891
ot
Panel B: What kind of firms benefit more from executives with academic experience
(1) (2) (3) (4)
tn
Academic1t -0.0396** -0.0088

(-2.2234) (-0.7992)
Academic2t -0.1644*** -0.0315
(-4.1473) (-1.2180)
rin

Variables
ep
Constant 0.0954*** -0.0096 0.0748*** -0.0134

(3.7373) (-0.6197) (3.1176) (-0.8898)
Observation 7,256 7,667 7,256 7,667
Panel C: What type of academic experience can reduce corporate litigation
Pr
(1) (2) (3) (4)

38
Universityt -0.0862** -0.0878**
(-2.4619) (-2.5011)
Research -0.0096 -0.0128
Institutiont
(-0.2013) (-0.2679)
Research -0.0309 -0.0333
ed
Associationt
(-0.8457) (-0.9071)
variables
iew
Constant 0.0223** 0.0209* 0.0215* 0.0235**
(2.0297) (1.9426) (1.9530) (2.1158)
Observations 22,387 22,387 22,387 22,387
Adjusted R2 0.0679 0.0678 0.0678 0.0679
v
Panel D: In what circumstances can academic executives mitigate litigation risk
(1) (2) (3) (4)
re
Academic1t 0.0419 -0.0255
(0.7810) (-1.0017)
Academic2t
er 0.0177
(0.2377)
-0.1729***
(-3.9963)
Control
Yes Yes Yes Yes
Variables
pe
Constant -0.0609 -0.0214 -0.0016 -0.0047
(-0.9019) (-1.0545) (-0.0204) (-0.2049)
ot
Observation 755 3,218 755 3,218

Adjusted R2 0.0364 0.0487 0.0349 0.0495
Panel A of this Table tests the heterogeneity from the perspective of company size. Panel B of this Table tests
tn
heterogeneity from the perspectives of information asymmetry. In Panel A and Panel B, the dependent variable is
AllVal and the test variables are Academic1 and Academic2. Panel C of this Table presents the results of the effect
of different types of academic experience on corporate litigation. The dependent variable is AllVal and the test
variables are University, Institution and Association. University is the proxy variable for a senior executives has
academic experience if he or she is currently or has previously taught in universities, column (1) presents the results
of the effect of academic experience in teaching at universities on corporate litigation. Institution is the proxy variable
rin
for a senior executives has academic experience if he or she is currently or has previously served in scientific research
institutions, column (2) presents the results of the effect of academic experience in institution on corporate litigation.
Association is the proxy variable for a senior executives has academic experience if he or she is currently or has
previously engaged in research at the association. column (3) presents the results of the effect of research experience
in Associations on corporate litigation. In column (4), we combine these three academic experiences into one model.
ep
Panel D of this table presents the results of studying the impact of academic executives on litigation risk, divided
into two groups based on whether the CEO has an academic background. In the first and third columns, CEOs have
an academic background, while in the second and fourth columns, CEOs do not have an academic background. All
independent variables are lagged by one year. t-Statistics in the brackets are based on standard errors adjusted for
clustering at the firm level. *, ** and *** indicate significance at the 0.10, 0.05 and 0.01 level (two-tailed),
Pr
respectively. All variables are defined in Appendix A.
39
ed
v iew
re
er
pe
ot
tn
rin
ep
Pr
40

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From Academia to the Courtroom: Impact of Academic Executives

a School of Economics, Jinan University, Guangzhou, Guangdong, 510632, China

the value of executives’ academic work experience in risk management and

Keywords: Academic Experience; Litigation Risk; Critical mass; Executive

Email addresses: pingliuzy@163.com (P.Liu), hanxiong.zhang@surrey.ac.uk (H.Zhang), shanlicumt@163.com (S.

Third, we contribute to the growing body of literature on corporate litigation. Although

2.2 Litigation risks

H1. Academic executives suppress litigation risks.

H2. Academic executives promote litigation risks.

3.2.1 Dependent variable: corporate litigation

by one-period. The basic empirical model employed is:

𝑖,𝑡−1 + 𝛼11Indep𝑖,𝑡−1 + 𝛼12Shrcr1𝑖,𝑡−1 + 𝛼13Cashflow𝑖,𝑡−1 + 𝛼14Growth𝑖,𝑡−1 + 𝛼15

Mshare𝑖,𝑡−1 + 𝛼16INST𝑖,𝑡−1 + 𝑌𝑒𝑎𝑟 + 𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦 + 𝜀𝑖,𝑡−1

Table 3 about here

4.3 Baseline regressions

4.4 Critical mass

4.5.1 Entropy Balancing

Table 6 about here

AllVali,𝑡 = 𝛼0 + 𝛼1Treat𝑖,𝑡−1 × 𝑃𝑜𝑠𝑡𝑖,𝑡−1 + 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠 + 𝑌𝑒𝑎𝑟 + 𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦 + 𝜀𝑖,𝑡−1

enacted in the firm of incorporation in a given year, and 0 otherwise.

4.5.3 Lagged variables

4.5.4 Instrumental variable analysis

4.5.6 Placebo test er

contamination by any rare shocks.

4.6 Robustness tests

4.6.1 Alternative measures of academic executives

4.6.3 Tobit model

5.1.1 Internal control

Internal control, as an important component of modern enterprise management, can be traced

Therefore, academic executives suppress corporate litigation by strengthening internal control.

smaller in magnitude compared to the corresponding coefficient in Column 1 (-0.0202,-0.0629),

5.2.1 Legal environment

when the quality of the legal environment is better.

5.2.2 Market Competition

5.2.3 Financial constraints

6.1 What kind of firms benefit more from academic executives?

the impact of academic executives on corporate litigation outcomes.

6.1.1 Enterprise size

diversity and bank misconduct. Journal of Corporate Finance, 71, 101834.

managerial ability? Journal of Corporate Finance, 79, 102364.

psychological research: Conceptual, strategic, and statistical considerations. Journal of

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Appendix A. Variable definitions

ROA The net income divided by total assets.

Research Institution & Research Association 97

Panel B descriptive statistics

Academic2 27,264 0.124 0.330 0 0 1

MB 27,264 3.920 2.802 1.158 3.170 33.82

Dual 27,264 0.272 0.445 0 0 1

Mshare 0.126 0.177 -0.0512 -13.4882***

Academic2 -0.0223*** 0.7571*** 1

Size -0.0407*** -0.0466*** 0.0146** 1

Lev 0.0618*** -0.1147*** -0.0708*** 0.4950*** 1

ROA -0.2056*** 0.0440*** 0.0441*** -0.00950 -0.3470*** 1

MB 0.0948*** -0.0235*** -0.0171*** -0.0552*** 0.3850*** -0.1162*** 1

Ret -0.0260*** 0.0172*** 0.0103* -0.0646*** -0.0324*** 0.1353*** 0.2982***

FirmAge 0.0604*** -0.0497*** -0.0256*** 0.1915*** 0.1592*** -0.1016*** 0.0929***

Academic2 -0.0223* 0.7571* 1

Size -0.0407* -0.0466* 0.0146** 1

Lev 0.0618* -0.1147* -0.0708* 0.4950* 1

ROA -0.2056* 0.0440* 0.0441* -0.00950 -0.3470* 1

MB 0.0948* -0.0235* -0.0171* -0.0552* 0.3850* -0.1162* 1

Ret -0.0260* 0.0172* 0.0103* -0.0646* -0.0324* 0.1353* 0.2982*

FirmAge 0.0604* -0.0497* -0.0256* 0.1915* 0.1592* -0.1016* 0.0929***

Dual 0.00340 0.1560* 0.0938* -0.1601* -0.1455* 0.0330* -0.0220*

Board -0.0374* -0.0242* 0.0369* 0.2365* 0.1453* 0.0225* -0.0246***

Indep 0.00900 0.0292* 0.00210 0.0123 -0.0148 -0.0207* 0.0241***

Shrcr1 -0.0657* -0.0603* -0.0461* 0.1667* 0.0528* 0.1314* -0.0526***

Growth -0.0510* 0.0171* 0.0125 0.0407* 0.0315* 0.2164* 0.0402***

Mshare -0.0250* 0.1520* 0.0860* -0.3190* -0.3249* 0.1448* -0.1515***

INST -0.0449* -0.0921* -0.0366* 0.3995* 0.2065* 0.0990* 0.0586***

Dual 0.0331* 0.0649* -0.0743*** 1

Indep 0.0162* 0.0203* 0.00300 0.1160* -0.5204* 1

Cashflow 0.1021* -0.0351* 0.0160* -0.00910 0.0376* -0.0161* 0.0730*

Growth 0.0727* 0.0377* -0.0675* 0.0235* -0.00710 0.00630 0.00830

Mshare 0.0542* 0.1120* -0.2128***

INST 0.00160 -0.0995* 0.0155 -0.1977* 0.2234* -0.0677* 0.5005*

INST 0.1028* 0.0332* -0.6599*** 1

Academic1t -0.0208* -0.0192* -0.0199**

Constant 0.0954* -0.0096 0.0748* -0.0134