Discussion of 'Audit Committee Financial Expertise and Earnings Management: The Role of Status' by Badolato, Donelson, and Ege
Journal of Accounting and Economics, Volume 58, No. 2-3, November/December 2014 Forthcoming
Posted: 13 Aug 2014
Date Written: July 29, 2014
Badolato et al. (2014) (BDE) examine the effectiveness of audit committee financial expertise. They find that financial expertise does not deter irregularities unless the audit committee also has high status. I review prior research on financial expertise to place the current study in the literature and for guidance in assessing the paper’s assumptions and empirical specifications. BDE’s conclusions run counter to many of the prior findings and to broad patterns in the data. I discuss how empirical research design choices and self-selection may affect the paper’s conclusions.
Keywords: audit committees, earnings management, status, financial expertise
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