The Relationship Between Directors' Independence, Reputation and Management Earnings Forecasts

36 Pages Posted: 20 Nov 2007 Last revised: 17 Feb 2008

See all articles by H. Chan

H. Chan

University of Melbourne - Department of Finance; Monash University - Department of Accounting

Robert W. Faff

University of Queensland

Paul R. Mather

La Trobe University

Alan L. Ramsay

Monash University - Department of Accounting

Date Written: September 2007

Abstract

We examine the relationship between corporate governance and management earnings forecasts. We extend the prior literature by examining the impact of independent director reputation on characteristics of management forecasts, by refining the previously used proxy for director independence and by distinguishing between routine and non-routine forecasts. We find a significant positive relationship between the likelihood and frequency of firms issuing management earnings forecasts and our measures of audit committee independence and independent director reputation but not board independence. However, there is some evidence that director independence is related to more specific forecasts. We also find that these results are driven by the routine earnings forecasts over which management have greater discretion.

Keywords: Management earnings forecasts, corporate governance, director reputation

JEL Classification: G34, M41, M45

Suggested Citation

Chan, Howard and Faff, Robert W. and Mather, Paul R. and Ramsay, Alan, The Relationship Between Directors' Independence, Reputation and Management Earnings Forecasts (September 2007). Available at SSRN: https://ssrn.com/abstract=1030725 or http://dx.doi.org/10.2139/ssrn.1030725

Howard Chan

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Monash University - Department of Accounting ( email )

Building 11E
Clayton, Victoria 3800
Australia

Robert W. Faff

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Paul R. Mather (Contact Author)

La Trobe University ( email )

School of Accounting
Bundoora
Melbourne, Victoria 3086
Australia
+61-3-9479-5264 (Phone)

Alan Ramsay

Monash University - Department of Accounting ( email )

Building 11E
Clayton, Victoria 3800
Australia

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