Audit Committee Member Contextual Experiences and Financial Reporting Outcomes

60 Pages Posted: 21 Feb 2013

See all articles by Marcy L. Shepardson

Marcy L. Shepardson

Indiana University - Kelley School of Business - Department of Accounting

Date Written: February 1, 2013

Abstract

Audit committee independence rules reduce potential firm-specific information for audit committees and self-interest may bias manager-provided information. Given these considerable limitations, it is important to understand how audit committee members (ACMs) obtain information for their monitoring activities. I investigate how a firm’s (focal firm) financial reporting monitoring outcomes are affected by its ACMs’ contextual experiences, either as managers or monitors, with other firms (interlocks). Specifically, I estimate whether contextual experiences with goodwill impairment decisions, measured as interlocks with firms that likely performed extensive impairment analyses in the prior year, affect the likelihood of focal firm goodwill write-off, other things equal. Overall results suggest that ACM contextual experiences increase the likelihood of goodwill write-off and are most influential when contextual experience is obtained as a manager, rather than a monitor. However, for large firms, contextual experience does not affect reporting when managerial equity-based incentives are strong.

Keywords: audit committees, financial expertise, independence, goodwill impairment

Suggested Citation

Shepardson, Marcy L., Audit Committee Member Contextual Experiences and Financial Reporting Outcomes (February 1, 2013). Available at SSRN: https://ssrn.com/abstract=2221366 or http://dx.doi.org/10.2139/ssrn.2221366

Marcy L. Shepardson (Contact Author)

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

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