Publication Type

Journal Article

Publication Date

6-2015

Abstract

In this paper, we examine whether recent regulatory reforms requiring majority board independence are effective in reducing earnings management. Firms that did not have a majority of independent directors prior to the reforms (referred to as non-compliance firms) are required to increase their board independence. We find that overall, compared to the other firms, noncompliance firms do not experience a significant decrease in the extent of earnings management from prior to the reforms to afterwards. However, we find that non-compliance firms with low information acquisition cost experience a significant reduction in earnings management compared with the other firms. The results hold for various proxies for information acquisition cost and earnings management. These findings indicate that independent directors’ monitoring is more effective in a richer information environment.

Keywords

earnings management, corporate governance, board independence, information environment

Discipline

Accounting | Corporate Finance

Research Areas

Corporate Reporting and Disclosure

Publication

American Accounting Association Annual Meeting

Volume

20

Issue

2

First Page

899

Last Page

933

ISSN

1380-6653

Publisher

Springer Verlag (Germany)

City or Country

Denver, CO

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

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