Does director interlock impact the diffusion of accounting method choice?

• Main Authors: HAN, Jie, HU, Nan, LIU, Ling, TIAN, Gaoliang
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2017
• Subjects: Director interlock; Accounting method choice; Behavior diffusion; Similarity; Accounting; Databases and Information Systems; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/sis_research/8013; https://ink.library.smu.edu.sg/context/sis_research/article/9016/viewcontent/DirectorInterlock_av.pdf
• Institution: Singapore Management University

This paper examines the influence of director interlock on firms' discrete accounting method choices from the perspective of behavior diffusion. We argue that firm managers will imitate their interlocked-partner firm's accounting method choices when choosing their own accounting methods. We find that when there is an interlock relationship between two firms, their accounting method choices, including inventory and depreciation methods, are similar to each other, indicating that accounting method choices can diffuse across firms through director interlock. In addition, such similarity is greater the longer the interlock relationship between the two firms is and as uncertainty increases. Further, the interlock effect on depreciation methods is larger for firms whose interlock directors have accounting backgrounds. Finally after considering sample selection bias, the influence of industry homogeneity, the issue of endogeneity, the influence of interlock direction, using accruals as a measurement of the aggregations of accounting method choices, and so on, our results are still robust.