Articlegreen2008

Staggered Boards and Earnings Management

183 citations0/0 files storedThe Accounting Review

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Auditing, Earnings Management, Governance Corporate Finance and Governance Corporate Governance and Financial Management

Abstract

ABSTRACT: The literature suggests that staggered boards may have two opposite effects on earnings management: the expropriation view emphasizes the exacerbating effect, whereas the quiet life view advocates the mitigating effect. We use two approaches to examine this issue: a small-sample test based on whether firms are accused of committing financial reporting fraud, and a large-sample test based on the absolute value of unexpected accruals. We find that staggered boards are associated with lower likelihoods of committing fraud and smaller magnitudes of absolute unexpected accruals. Consistent with prior studies, we also find that staggered boards are negatively associated with firm value. The results suggest that staggered boards may enable managers to enjoy the quiet life and lessen their motivation to increase firm value; as a consequence, managers are not motivated to manage earnings.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1983Separation of Ownership and Control 1998Law and Finance 1997A Survey of Corporate Governance 1968FINANCIAL RATIOS, DISCRIMINANT ANALYSIS AND THE PREDICTION OF CORPORATE BANKRUPTCY 1996Production, Information Costs and Economic Organization 1991Earnings Management During Import Relief Investigations 1988Management ownership and market valuation

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