Directors Skill and Financial Reporting Quality

37 Pages Posted: 25 Apr 2019

See all articles by Amir Rubin

Amir Rubin

Simon Fraser University (SFU) - Beedie School of Business; Interdisciplinary Center (IDC) Herzliyah

Dan Segal

Interdisciplinary Center (IDC) Herzliyah

Multiple version iconThere are 2 versions of this paper

Date Written: March/April 2019

Abstract

Motivated by theoretical models in economics which show that there is matching between CEO skill and firm size, we introduce a new measure of director skill which is based on the aggregate size of firms on which the director serves as an independent director. We validate our measure by showing that it is positively associated with director experience, financial expertise, industry expertise and managerial experience. We then examine whether our average measure of skill across board members is positively associated with monitoring quality. Controlling for the endogenous relationships between board composition and financial reporting quality, we find a positive association between our board measure for skill and monitoring quality, and we show that directors have a causal impact on monitoring effort and outcomes. Furthermore, consistent with the enhanced monitoring provided by skilled directors, we document a positive association between the level of and changes in our measure and firm value.

Keywords: financial reporting quality, independent directors, monitoring, skill

Suggested Citation

Rubin, Amir and Segal, Dan, Directors Skill and Financial Reporting Quality (March/April 2019). Journal of Business Finance & Accounting, Vol. 46, Issue 3-4, pp. 457-493, 2019. Available at SSRN: https://ssrn.com/abstract=3377611 or http://dx.doi.org/10.1111/jbfa.12359

Amir Rubin (Contact Author)

Simon Fraser University (SFU) - Beedie School of Business ( email )

8888 University Drive
Burnaby, British Colombia V5A 1S6
Canada

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

Dan Segal

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

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