Publication Type
Journal Article
Version
Postprint
Publication Date
6-2015
Abstract
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.
Keywords
earnings management, corporate governance, board independence, information environment
Discipline
Accounting | Corporate Finance
Research Areas
Corporate Reporting and Disclosure
Publication
Review of Accounting Studies
Volume
20
Issue
2
First Page
899
Last Page
933
ISSN
1380-6653
Identifier
10.1007/s11142-015-9316-0
Publisher
Springer Verlag
Citation
CHEN, Xia; CHENG, Qiang; and WANG, Xin.
Does increased board independence reduce earnings management? Evidence from the recent regulatory reform. (2015). Review of Accounting Studies. 20, (2), 899-933.
Available at: https://ink.library.smu.edu.sg/soa_research/1385
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1007/s11142-015-9316-0