Articlegreen2017

Do independent director’s characteristics influence financial reporting quality?

Francisco Bravo Urquiza · Nuria Reguera Alvarado

46 citations0/0 files storedSpanish Journal of Finance and Accounting / Revista Española de Financiación y Contabilidad

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

Abstract

This paper analyses whether the role played by independent directors in monitoring the financial reporting process is affected by certain personal characteristics. Specifically, we focus on the tenure and the number of directorships that independent directors hold. Our sample is composed of US listed firms for the period 2008–2012. After performing several robustness checks and sensitivity analyses, we have documented a positive association between board independence and financial reporting quality. However, this association is presented only for certain values of directors’ tenure and external directorships. This evidence suggests that the effectiveness of independent directors in their monitoring tasks is affected by these personal characteristics. In particular, our results indicate that long tenures and a high number of directorships compromise the ability to monitor. Therefore, this paper highlights the need for a more specific approach, based on the personal characteristics of independent directors, in order to study their influence on corporate decisions. Furthermore, our evidence has direct implications for companies in the selection of board members.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 2022Business Research Methods 1980Agency Problems and the Theory of the Firm 2002The Quality of Accruals and Earnings: The Role of Accrual Estimation Errors 1983Agency Problems and Residual Claims 2002Audit committee, board of director characteristics, and earnings management 2010Understanding earnings quality: A review of the proxies, their determinants and their consequences 1996Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC*

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