Does increased board independence reduce earnings management? Evidence from the recent regulatory reform

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 t...

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Main Authors: CHEN, Xia, CHENG, Qiang, WANG, Xin
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2015
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Online Access:https://ink.library.smu.edu.sg/soa_research/1385
https://ink.library.smu.edu.sg/context/soa_research/article/2384/viewcontent/SSRN_id2522695.pdf
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spelling sg-smu-ink.soa_research-23842018-10-15T09:24:40Z Does increased board independence reduce earnings management? Evidence from the recent regulatory reform CHEN, Xia CHENG, Qiang WANG, Xin 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. 2015-06-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/soa_research/1385 info:doi/10.1007/s11142-015-9316-0 https://ink.library.smu.edu.sg/context/soa_research/article/2384/viewcontent/SSRN_id2522695.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Accountancy eng Institutional Knowledge at Singapore Management University earnings management corporate governance board independence information environment Accounting Corporate Finance
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic earnings management
corporate governance
board independence
information environment
Accounting
Corporate Finance
spellingShingle earnings management
corporate governance
board independence
information environment
Accounting
Corporate Finance
CHEN, Xia
CHENG, Qiang
WANG, Xin
Does increased board independence reduce earnings management? Evidence from the recent regulatory reform
description 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.
format text
author CHEN, Xia
CHENG, Qiang
WANG, Xin
author_facet CHEN, Xia
CHENG, Qiang
WANG, Xin
author_sort CHEN, Xia
title Does increased board independence reduce earnings management? Evidence from the recent regulatory reform
title_short Does increased board independence reduce earnings management? Evidence from the recent regulatory reform
title_full Does increased board independence reduce earnings management? Evidence from the recent regulatory reform
title_fullStr Does increased board independence reduce earnings management? Evidence from the recent regulatory reform
title_full_unstemmed Does increased board independence reduce earnings management? Evidence from the recent regulatory reform
title_sort does increased board independence reduce earnings management? evidence from the recent regulatory reform
publisher Institutional Knowledge at Singapore Management University
publishDate 2015
url https://ink.library.smu.edu.sg/soa_research/1385
https://ink.library.smu.edu.sg/context/soa_research/article/2384/viewcontent/SSRN_id2522695.pdf
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