Does increased board independence reduce earnings management? Evidence from recent regulatory reforms
By Xia Chen, Qiang Cheng, Xin Wang. Review of accounting studies, 2015
282 citations recorded by the source corpus.
We examine whether recent regulatory reforms requiring majority board independence reduce the extent of earnings management. Firms that did not have a majority of independent directors before the reforms (referred to as noncompliant firms) are required to increase their board independence. We find that, while noncompliant firms on average do not experience a significant decrease in earnings management after the reforms compared to other firms, noncompliant firms with low information acquisition cost experience a significant reduction in earnings management. The results are similar when we examine audit committee independence and when we use alternative proxies for information acquisition cost and earnings management. These findings indicate that independent directors’ monitoring is more effective in a richer information environment.
Subfields: Accounting, Strategy and Management
View Paper: https://www.semanticscholar.org/paper/e3e65ba90bef9ecb1fdc48dc5e7d9539c85ee15f
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Accounting
- Christopher S. Armstrong
- W. Guay
- John E. Core
- Jens Hagendorff
- Angelica Gonzalez
- Vathunyoo Sila
- David F. Larcker
- Christian Leuz
In Strategy and Management
- Christopher S. Armstrong
- John E. Core
- W. Guay
- Angelica Gonzalez
- Jens Hagendorff
- Vathunyoo Sila
- Christian Leuz
- Peter D. Wysocki
Citations in the corpus
- Independent Director Reputation Incentives and Stock Price Informativeness (2017, background): “, 2004) and more specifically to the literature on transparency and corporate governance (Chen et al., 2015; Armstrong et al., 2012; Ferreira and Laux, 2007).”
- Board gender diversity and dividend policy in Australian listed firms: the effect of ownership concentration (2019, unknown): “Thus, non-executive directors are more independent of management than executive directors are and will, therefore, provide more effective monitoring (Chen et al., 2015; Liu et al., 2014) that can result in increased dividend payments.”
- Do Independent Directors Cause Improvements in Firm Transparency (2014, background): “, 2010), CEO compensation (Chhaochharia and Grinstein, 2009), credit risk (Chen, 2011) and earnings management (Chen et al., 2011).”