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Board Characteristics, Accounting Report Integrity, and the Cost of Debt


Ronald C. Anderson


American University - Kogod School of Business

Sattar Mansi


Virginia Polytechnic Institute & State University

David M. Reeb


National University of Singapore; Temple University

November 15, 2003

Journal of Accounting & Economics (JAE), Vol. 37, No. 3, 2004

Abstract:     
Creditor reliance on accounting-based debt covenants suggests that debtors are potentially concerned with board of director characteristics that influence the financial accounting process. In a sample of S&P 500 firms, we find that the cost of debt financing is inversely related to board independence and board size. We also examine the impact of audit committee characteristics on corporate yields spreads as audit committees are the direct mechanism that boards use to monitor the financial accounting process. We find that fully independent audit committees are associated with a significantly lower cost of debt financing. Similarly, yield spreads are also negatively related to audit committee size and the number of audit committee meetings. Overall, these results provide market-based evidence that boards and audit committees are important elements affecting the reliability of financial reports.

Number of Pages in PDF File: 43

Keywords: Accounting process, debt covenants, audit committee composition, board composition, corporate governance, financial statements, accounting information

JEL Classification: M41, M49, K00, G12, G34

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Date posted: April 15, 2004 ; Last revised: March 24, 2009

Suggested Citation

Anderson, Ronald C. and Mansi, Sattar and Reeb, David M., Board Characteristics, Accounting Report Integrity, and the Cost of Debt (November 15, 2003). Journal of Accounting & Economics (JAE), Vol. 37, No. 3, 2004. Available at SSRN: http://ssrn.com/abstract=491883 or http://dx.doi.org/10.2139/ssrn.491883

Contact Information

Ronald Craig Anderson
American University - Kogod School of Business ( email )
4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States
202-885-2199 (Phone)
202-885-1946 (Fax)
Sattar Mansi (Contact Author)
Virginia Polytechnic Institute & State University ( email )
David M. Reeb
National University of Singapore ( email )
Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore
Temple University ( email )
Alter Hall
Philadelphia, PA 19122
United States
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