Board of Directors and Opportunistic Earnings Management: Evidence from India

Posted: 21 Dec 2008

See all articles by Jayati Sarkar

Jayati Sarkar

Indira Gandhi Institute of Development Research (IGIDR)

Subrata Sarkar

Indira Gandhi Institute of Development Research (IGIDR)

Kaustav Sen

Pace University - Lubin School of Business

Date Written: December 20, 2008

Abstract

Using a sample of 500 large companies over a two-year period, we examine the impact of board characteristics on opportunistic earnings management in India, a large emerging economy. In addition to board independence, we analyze how characteristics that proxy for the 'quality' of inside and outside directors affect the role of boards in curbing earnings management. Our results indicate that it is not board independence per se, but rather board quality that is important for earnings management. We find that diligent boards are associated with lower earnings management, while boards that have directors with multiple appointments exhibit higher earnings management. With respect to inside directors, our results indicate that chief executive officer (CEO) duality and presence of controlling shareholders on the board increases earnings management. We also find that domestic institutional owners, one of our key control variables, act as a compensating control mechanism to mitigate the detrimental influence of controlling shareholders on earnings management. Our results complement the existing literature by analyzing the role of the board in reducing earnings management in emerging economies such as India, where the structures of business organizations are different from those in developed markets.

JEL Classification: G15, G34, M41, M43, M47

Suggested Citation

Sarkar, Jayati and Sarkar, Subrata and Sen, Kaustav, Board of Directors and Opportunistic Earnings Management: Evidence from India (December 20, 2008). Journal of Accounting, Auditing and Finance, Vol. 23, No. 4, 2008; Pace University Accounting Research Paper No. 2008/07. Available at SSRN: https://ssrn.com/abstract=1318704

Jayati Sarkar

Indira Gandhi Institute of Development Research (IGIDR) ( email )

Gen A.K. Vaidya Marg Santoshnagar
Goregaon (East)
Bombay 400065, Maharashtra
India
91-22-8400919 (Phone)
91-22-8402752 (Fax)

Subrata Sarkar

Indira Gandhi Institute of Development Research (IGIDR) ( email )

Gen A.K. Vaidya Marg Santoshnagar
Goregaon (East)
Bombay 400065, Maharashtra
India
(91)-(22)-840 0919 (Phone)
(91)-(22)-840 2752 (Fax)

Kaustav Sen (Contact Author)

Pace University - Lubin School of Business ( email )

1 Pace Plaza
New York, NY 10038-1502
United States
212 618 6413 (Phone)
212 618 6410 (Fax)

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