Do Director Networks Matter for Financial Reporting Quality? Evidence from Audit Committee Connectedness and Restatements

Forthcoming, Management Science

63 Pages Posted: 16 Jan 2014 Last revised: 27 Feb 2019

See all articles by Thomas C. Omer

Thomas C. Omer

University of Nebraska at Lincoln - School of Accountancy

Marjorie K. Shelley

University of Nebraska at Lincoln - School of Accountancy

Frances M. Tice

University of Colorado at Boulder - Department of Accounting

Date Written: September 1, 2018

Abstract

This study examines the effect of audit committee connectedness through director networks on financial reporting quality, specifically the misstatement of annual financial statements. Using network analysis, we examine multiple dimensions of connectedness and find that, after controlling for operating performance and corporate governance characteristics, firms with well-connected audit committees are less likely to misstate annual financial statements. In addition, our study demonstrates that audit committee connectedness through director networks moderates the negative effect of board interlocks to misstating firms on financial reporting quality. We conduct several tests to address identification concerns and find similar results. Our findings suggest that firms with better-connected audit committees are less likely to adopt reporting practices that reduce financial reporting quality.

Keywords: social networks, boards of directors, audit committees, corporate governance, financial reporting quality, restatements

JEL Classification: M40, M41, M42, G43

Suggested Citation

Omer, Thomas C. and Shelley, Marjorie and Tice, Frances M., Do Director Networks Matter for Financial Reporting Quality? Evidence from Audit Committee Connectedness and Restatements (September 1, 2018). Forthcoming, Management Science. Available at SSRN: https://ssrn.com/abstract=2379151 or http://dx.doi.org/10.2139/ssrn.2379151

Thomas C. Omer

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

Marjorie Shelley

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

Frances M. Tice (Contact Author)

University of Colorado at Boulder - Department of Accounting ( email )

419 UCB
Boulder, CO 80309-0419
United States

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