The Initiation of Audit Committee Interlocks and the Contagion of Accounting Policy Choices: Evidence from Special Items
Review of Accounting Studies, 2020, 25(1), 120-158
52 Pages Posted: 3 Aug 2019 Last revised: 11 Apr 2021
Date Written: October 21, 2019
We document that the initiation of audit committee interlocks is associated with contagion in reported special items. We argue that this is, in part, attributable to contagion of accounting policy choices. We find that the special items of newly interlocked firms, unrelated before interlock, become positively correlated afterward, suggesting information transfer starts with interlock formation. This result holds for negative special items, key components of special items (asset impairments, restructuring costs, and gains/losses from asset sales), and is stronger for larger firms and for firms within the same industry.
Keywords: Audit committee interlock, Information transfer, Special items, Restructuring charges, SFAS 146
JEL Classification: M41, M42, M48, G34, D83
Suggested Citation: Suggested Citation