Board Characteristics, Audit Committee Characteristics and Abnormal Accruals

29 Pages Posted: 18 May 2004

See all articles by Michael E. Bradbury

Michael E. Bradbury

Massey University

Yuen Teen Mak

National University of Singapore (NUS) - Department of Accounting

S.M. Tan

affiliation not provided to SSRN

Date Written: March 2004

Abstract

Prior research examines the relation between board characteristics and financial reporting violations relating to fraud and earnings overstatement. This paper examines the relation between governance (as measured by board and audit committee characteristics) and accounting quality (as measured by abnormal accruals) where there is no a priori reason to suspect systematic management of earnings. We find both board size and audit committee independence are related to higher quality accounting (i.e., lower abnormal working capital accruals). Furthermore, the relation between audit committee independence and higher quality accounting exists only when the abnormal accruals are income increasing. This suggests that audit committees are effective in the financial reporting process by reducing the level of income increasing abnormal accruals. The results also indicate that audit committees are effective only when they comprise independent directors.

Keywords: Audit committee, board characteristics, abnormal accruals

JEL Classification: G34, M41, M43, M49

Suggested Citation

Bradbury, Michael E. and Mak, Yuen Teen and Tan, S.M., Board Characteristics, Audit Committee Characteristics and Abnormal Accruals (March 2004). Available at SSRN: https://ssrn.com/abstract=535764 or http://dx.doi.org/10.2139/ssrn.535764

Michael E. Bradbury (Contact Author)

Massey University ( email )

School of Accountancy
Private Bag 102 904
Auckland
New Zealand
64 9 414 0800 (Phone)
64 9 441 8133 (Fax)

Yuen Teen Mak

National University of Singapore (NUS) - Department of Accounting ( email )

BIZ2 Building, #03-32
1 Business Link
Singapore 119591
Singapore
+65 68743032 (Phone)
+ 65 67792083 (Fax)

S.M. Tan

affiliation not provided to SSRN

No Address Available

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