Corporate Boards, Audit Committees, and Earnings Management: Pre- and Post-SOX Evidence

32 Pages Posted: 1 Jan 2011

See all articles by Al (Aloke) Ghosh

Al (Aloke) Ghosh

UNC Charlotte

Antonio Marra

Bocconi University - Department of Accounting

Doocheol Moon

SUNY at Old Westbury - School of Business

Abstract

Primarily motivated by the claims that the recent regulatory initiatives empowering boards and audit committees restrain earnings management, we examine whether board characteristics (composition, size, and structure) and audit committee characteristics (composition, size, activity, expertise, ownership, and tenure) are associated with earnings management before and after Sarbanes-Oxley Act (SOX). Using absolute performance-adjusted discretionary accruals, special items, and deferred tax expense as alternative constructs for earnings management, we find that earnings management does not vary with board composition and structure, or with audit committee composition, expertise, and ownership. In contrast, board size and audit committee size, activity, and tenure are associated with earnings management. More important, the strength of this association is considerably weaker for the post-SOX years compared to the pre-SOX years. Finally, we find no evidence to suggest that the overall level of earnings management declined following SOX.

Keywords: corporate boards, audit committees, earnings management, accounting accruals

Suggested Citation

Ghosh, Al (Aloke) and Marra, Antonio and Moon, Doocheol, Corporate Boards, Audit Committees, and Earnings Management: Pre- and Post-SOX Evidence. Journal of Business Finance & Accounting, Vol. 37, Issue 9-10, pp. 1145-1176, 2010, Available at SSRN: https://ssrn.com/abstract=1733382 or http://dx.doi.org/10.1111/j.1468-5957.2010.02218.x

Al (Aloke) Ghosh (Contact Author)

UNC Charlotte ( email )

9201 University City Blvd
Charlotte, NC 28223
United States

HOME PAGE: http://www.alokeghosh.com

Antonio Marra

Bocconi University - Department of Accounting ( email )

Via Roentgen 1
Milan, 20136
Italy

Doocheol Moon

SUNY at Old Westbury - School of Business ( email )

Old Westbury, NY 11568-0210
United States

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