32 Pages Posted: 22 Mar 2002
Date Written: July 5, 2001
We examine the role of the board of directors, the audit committee, and the executive committee in preventing earnings management. Supporting an SEC Panel Report's conclusion that audit committee members need financial sophistication, we show that the composition of a board in general and of an audit committee more specifically, is related to the likelihood that a firm will engage in earnings management. Board and audit committee members with corporate or financial backgrounds are associated with firms that have smaller discretionary current accruals. Board and audit committee meeting frequency is also associated with reduced levels of discretionary current accruals. We conclude that board and audit committee activity and their members' financial sophistication may be important factors in constraining the propensity of managers to engage in earnings management.
Keywords: corporate governance, earnings management, boards of directors, board committees
JEL Classification: G34, M41, M43
Suggested Citation: Suggested Citation
Xie, Biao and Davidson, Wallace N. and DaDalt, Peter J., Earnings Management and Corporate Governance: The Roles of the Board and the Audit Committee (July 5, 2001). Available at SSRN: https://ssrn.com/abstract=304195 or http://dx.doi.org/10.2139/ssrn.304195
By April Klein