Director Connectedness: Monitoring Efficacy and Career Prospects
Journal of Financial and Quantitative Analysis, Forthcoming
68 Pages Posted: 16 Nov 2015 Last revised: 17 Dec 2017
Date Written: December 15, 2017
We examine a specific channel through which director connectedness may improve monitoring: financial reporting quality. We find that the connectedness of independent, non-co-opted audit committee members has a positive effect on financial reporting quality and accounting conservatism. The effect is not significant for non-audit committee or co-opted audit committee members. Our results are robust to tests designed to mitigate self-selection. Consistent with connected directors being valuable, the market reacts more negatively to the death of highly connected directors than less connected directors. Better connected directors also have better career prospects, suggesting that they have greater incentives to monitor.
Keywords: Centrality; Director connectedness; Director Turnover; Financial Reporting Quality; Audit Committee; Misconduct
JEL Classification: G30, J33, M52
Suggested Citation: Suggested Citation