Staggered Boards, Accounting Discretion, and Firm Value

43 Pages Posted: 1 Oct 2010

See all articles by Pornsit Jiraporn

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Yixin Liu

University of New Hampshire

Date Written: September 29, 2010

Abstract

Motivated by agency theory, this study investigates how staggered boards influence accounting discretion. The results indicate that staggered boards do affect accounting discretion. In fact, the impact of staggered boards on accounting discretion is substantially larger (about seven times stronger) than the effect of all other corporate governance provisions combined. Firms with a staggered board exercise less income-inflating accounting discretion. Further evidence reveals that accounting discretion has a benign effect on subsequent firm value. Yet, the presence of staggered boards reduces significantly the favorable effect of accounting discretion on subsequent firm performance. The evidence is robust to a large number of control variables including other governance provisions. The evidence is in line with the notion that staggered boards improve managers’ job security, reduce managerial myopia, and thus induce managers to exercise less short-term transitory accounting discretion.

Keywords: earnings management, accounting discretion, staggered boards, corporate governance

JEL Classification: G30, G34, M41

Suggested Citation

Jiraporn, Pornsit and Liu, Yixin, Staggered Boards, Accounting Discretion, and Firm Value (September 29, 2010). Available at SSRN: https://ssrn.com/abstract=1684676 or http://dx.doi.org/10.2139/ssrn.1684676

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

Yixin Liu

University of New Hampshire ( email )

Durham, NH 03824
United States
603-862-3357 (Phone)

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