The Effect of the Board Composition and its Monitoring Committees on Earnings Management: Evidence from Spain

16 Pages Posted: 13 Dec 2007

See all articles by Beatriz Garcia Osma

Beatriz Garcia Osma

Universidad Carlos III de Madrid - Department of Business Administration; European Corporate Governance Institute (ECGI)

Belén Gill-de-Albornoz Noguer

affiliation not provided to SSRN

Abstract

We test whether corporate governance mechanisms promoted by best practice codes are effective in constraining earnings manipulation for a Spanish sample of quoted companies during the period 1999-2001. In particular, we analyze the association between earnings management and two key aspects of corporate governance: board composition and the existence of board monitoring committees. Our results show that board composition significantly determines earnings manipulation practices. However, the main role in constraining such practices is not played by independent directors, as UK and US based research suggests, but by institutional directors. No correlation is found between the existence of an independent audit committee and earnings management measures. Finally, the existence and composition of a nomination committee affects the role of independent directors in constraining earnings manipulation.

Suggested Citation

Garcia Osma, Beatriz and Noguer, Belén Gill-de-Albornoz, The Effect of the Board Composition and its Monitoring Committees on Earnings Management: Evidence from Spain. Corporate Governance: An International Review, Vol. 15, Issue 6, pp. 1413-1428, November 2007, Available at SSRN: https://ssrn.com/abstract=1072222 or http://dx.doi.org/10.1111/j.1467-8683.2007.00654.x

Beatriz Garcia Osma (Contact Author)

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Belén Gill-de-Albornoz Noguer

affiliation not provided to SSRN

No Address Available

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