Board of Directors and Opportunistic Earnings Management: Evidence from India

2008 ◽  
Vol 23 (4) ◽  
pp. 517-551 ◽  
Author(s):  
Jayati Sarkar ◽  
Subrata Sarkar ◽  
Kaustav Sen
Keyword(s):  
Earnings Management ◽  
Chief Executive ◽  
Board Independence ◽  
Business Organizations ◽  
Outside Directors ◽  
Controlling Shareholders ◽  
Inside Directors ◽  
Institutional Owners ◽  
The Impact

Using a sample of 500 large companies over a two-year period, we examine the impact of board characteristics on opportunistic earnings management in India, a large emerging economy. In addition to board independence, we analyze how characteristics that proxy for the “quality” of inside and outside directors affect the role of boards in curbing earnings management. Our results indicate that it is not board independence per se, but rather board quality that is important for earnings management. We find that diligent boards are associated with lower earnings management, while boards that have directors with multiple appointments exhibit higher earnings management. With respect to inside directors, our results indicate that chief executive officer (CEO) duality and presence of controlling shareholders on the board increases earnings management. We also find that domestic institutional owners, one of our key control variables, act as a compensating control mechanism to mitigate the detrimental influence of controlling shareholders on earnings management. Our results complement the existing literature by analyzing the role of the board in reducing earnings management in emerging economies such as India, where the structures of business organizations are different from those in developed markets.

CEO duality, earnings quality and board independence

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Sandra Alves
Keyword(s):  
Agency Theory ◽  
Fixed Effects ◽  
Earnings Quality ◽  
Chief Executive ◽  
Board Independence ◽  
Ceo Duality ◽  
Content Type ◽  
The Impact ◽  
The Relationship

Purpose This study draws on agency, theory to evaluate the relationship between chief executive officer (CEO) duality and earnings quality, proxied by discretionary accruals. Additionally, this study aims to examine whether board independence moderates the relationship between CEO duality and earnings quality. Design/methodology/approach This study uses a fixed-effects regression model to examine the effect of CEO duality on earnings quality and to test whether board independence moderates that relationship for a sample of non-financial listed Portuguese firms-year from 2002 to 2016. Findings Consistent with agency theory, this study suggests that CEO duality decreases earnings quality. Further, the results also suggest that the earnings quality reduction associated with CEO duality is attenuated when the board of directors has a higher proportion of independent directors. Practical implications The findings based on this study provide useful information to investors and regulators in evaluating the impact of CEO duality on earnings quality and the effect of board independence on the role of CEO duality, especially under concentrated ownership. Originality/value To the knowledge, this study is the first to investigate the role of board independence on the association between CEO duality and earnings quality. In addition, this paper is the first empirical study to investigate the direct and indirect effect of CEO duality on earnings quality in Portugal.

scholarly journals Ownership structure, board of directors and R&D investments: evidence from France.

2008 ◽  
Vol 5 (3) ◽  
pp. 250-262 ◽  
Author(s):  
Basma Sellami Mezghanni
Keyword(s):  
Board Of Directors ◽  
Chief Executive Officer ◽  
Ownership Structure ◽  
Chief Executive ◽  
Ownership Concentration ◽  
Outside Directors ◽  
Investment Level ◽  
Inside Directors ◽  
The Impact ◽  
D Investment

The purpose of this research is to analyze the impact of the characteristics related to the ownership structure and board of directors, as mechanisms of governance, on the research and development (R&D) intensity. The study carried out on a sample of French companies belonging to the SBF 250 index shows that ownership concentration and duality of chief executive officer and chairman roles have no significant effect on the R & D intensity. The board sizes as well as the proportion of inside directors in the board have a positive and significant effect on R & D intensity. However, the participation of outside directors in capital tends to urge managers to reduce R&D investment level

scholarly journals CEO Compensation and Firm Performance: The Role of ESG Transparency

2020 ◽  
Vol 4 (2) ◽  
pp. 278
Author(s):  
Chetna Rath ◽  
Florentina Kurniasari ◽  
Malabika Deo
Keyword(s):  
Firm Performance ◽  
Chief Executive Officers ◽  
Ceo Compensation ◽  
Negative Relationship ◽  
Chief Executive ◽  
Long Run ◽  
Ceo Pay ◽  
Executive Officers ◽  
The Impact

Chief executive officers (CEOs) of environmental, social, and governance (ESG) firms are known to take lesser pay and engage themselves in corporate social responsibility activities to achieve the dual objective of the enhancement of firm’s performance as well as benefit for stakeholders in the long run. This study examines the role of ESG transparency in strengthening the impact of firm performance on total CEO pay in ESG firms. A panel of 67 firms for the period of 2014–2019 has been analyzed using the two-step system GMM model, with NSE Nifty 100 ESG Index as the data sample and ESG scores from Bloomberg database as a proxy for transparency. Findings reveal that environmental and governance disclosure scores have the potential to intensify the negative relationship between firm performance and CEO compensation, while social disclosure scores do not. In addition, various firm-specific, board-specific, and CEO-specific attributes have also been considered controls affecting remuneration. This paper contributes to the literature by exploring the effect of exhibiting ESG transparency and its nexus with CEO pay as well as firm performance.

The role of audit committees in mitigating earnings management: evidence from Jordan

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Taha Almarayeh ◽  
Modar Abdullatif ◽  
Beatriz Aibar-Guzmán
Keyword(s):  
Developing Countries ◽  
Earnings Management ◽  
Audit Committee ◽  
Discretionary Accruals ◽  
Least Square ◽  
Audit Committees ◽  
Institutional Setting ◽  
Content Type ◽  
The Impact

PurposeThis study examines the relationship between audit committees (ACs) and earnings management (EM) in the developing country context of Jordan. In particular, it investigates whether audit committee attributes, including their size, independence, expertise and meetings, are able to restrict discretionary accruals as a proxy for EM.Design/methodology/approachThe generalized least square (GLS) regression was used to study the association between audit committee attributes and discretionary accruals, as a proxy of EM, for a sample of industrial firms listed on the Amman Stock Exchange (ASE) during the period 2012–2020. Data were obtained from the firms' annual reports.FindingsThe regression results indicate that audit committee independence is the only audit committee attribute that seems to improve the effectiveness of ACs, in that it is significantly associated with less EM, while other audit committee attributes that were tested do not show statistically significant associations.Research limitations/implicationsIn emerging markets, like Jordan, ACs may not be an efficient monitoring mechanism; therefore, it can be argued that the prediction made by the agency theory about the role of ACs in mitigating opportunistic EM activities does not necessarily apply to all contexts.Practical implicationsA better understanding of audit committee effectiveness in developing countries could help regulators in these countries assess the impact of planned corporate governance (CG) reforms and to better monitor and enhance the performance of ACs.Social implicationsIn a setting characterized by closely held companies, high power distance and low demand for high-quality CG mechanisms, this study contributes to understanding how this business system operates, and how improving CG mechanisms could be successful in such cultures.Originality/valueThis study investigates the under-researched relationship between audit committee characteristics and EM in developing countries. In so doing, it aims to provide new insights into this relationship within the developing context case of Jordan, including if and how the institutional setting influences this relationship.

scholarly journals Role of Social Relations of Outside Directors with CEO in Earnings Management

2017 ◽  
Vol 5 (4) ◽  
pp. 34
Author(s):  
Muhammad Shaique ◽  
Fei Guo ◽  
Ruqia Shaikh ◽  
Shahbaz Khan ◽  
Muhammad Usman
Keyword(s):  
Earnings Management ◽  
Social Relations ◽  
Outside Directors

scholarly journals Board Independence and Earnings Management: Evidence from Italy

2020 ◽  
Vol 15 (8) ◽  
pp. 26
Author(s):  
Stella Lippolis ◽  
Francesco Grimaldi
Keyword(s):  
Earnings Management ◽  
Board Of Directors ◽  
Earnings Quality ◽  
Chief Executive ◽  
Board Independence ◽  
Governance Mechanism ◽  
High Concentration ◽  
Management Activity ◽  
The Board Of Directors ◽  
Italian Context

This research aims to analyze the relationship between the characteristics of the Board of Directors (BoD) and the effectiveness of the monitoring of earnings manipulation activities in family – controlled companies in Italy. In particular, specific hypotheses relating to the link between those aspects of the Board, that substantiate its independence, and earnings quality have been formulated to verify whether the mechanisms for monitoring management activity are less effective in these companies. This study applies a univariate and multivariate methods on a sample of Italian listed company over the period 2014-2016.  Earnings management is defined by the proxy of abnormal working capital accrual (AWCA) estimed model according to DeFond and Park (2001). Proxies for corporate governance mechanism are the board size, the level of board independence, the CEO non-duality and the interaction between the last two variables. The research shows that independent directors are not, as in other contexts, a factor that contributes to earnings quality, in the same way that the separation of the offices of Chairman of the Board of Directors and Chief executive Officer (CEO) does not appear to be relevant to this end. The study aims to provide a double contribution. First, the research represents one of the few studies concerning the Italian context with its peculiarities, taking into consideration the earnings management issue in companies with a high concentration of family ownership. Secondly, this study aims to further stimulate the debate on the most effective features of structure and composition of the BoD in family-controlled companies: specifically, the conclusions could lead to a reconsideration of the validity of certain characters of the boards that defines independence.

scholarly journals The Impact of Governance Rules on Earnings Management: Applied Study on Industrial and Service Companies Listed on Palestine Stock Exchange

2019 ◽  
pp. 103-136
Author(s):  
Yousef Alrayyes ◽  
Nahed Al Khaldy
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Stock Exchange ◽  
Negative Influence ◽  
Positive Influence ◽  
Board Independence ◽  
Independence Property ◽  
Ceo Duality ◽  
Board Directors ◽  
The Impact

The aim of the study is to analyze the impact of corporate governance rules on earnings management for companies listed on Palestine Exchange. A number of corporate governance variables was selected to achieve this aim, including size of board of directors, CEO duality, board of director’s independence, property rights, number of board directors’ meetings. Modified Jones Model has been used to detect earnings management. Panel Data Model has also been involved in the study, where the population study consists of the 48 companies listed on Palestine Exchange, and which are distributed across five main sectors. The study sample included 13 industrial and services companies listed on Palestine Exchange. This study found that there was a negative influence between board size and CEO duality, and between earnings management. The study also showed that there is a positive influence between board independence and earnings management. Moreover, it showed that no relationship between board directors meetings and internal ownership with earnings management. The study stressed on the need for continued reinforcement of the governance rules, in order to avoid the negative impacts resulted from failure to apply these rules, taking into consideration the support of board independence in their relationship with areas of executive work to avoid taking decision that may affect earnings management. It also recommended that doing other researches on the same subject should be continued, taking into account the examination of variables other than those in this study to get to the variables that have the greatest impact on earnings management for companies listed on Palestine Exchange. 

scholarly journals Does the presence of independent directors reduce the practices of earnings management? The moderating role of family ownership concentration

2019 ◽  
Vol 69 (6) ◽  
pp. 638-654
Author(s):  
Deaa Al-Deen Al-Sraheen ◽  
Khaldoon Ahmad Al Daoud
Keyword(s):  
Earnings Management ◽  
Stock Exchange ◽  
Ownership Concentration ◽  
Future Research ◽  
Family Ownership ◽  
Board Independence ◽  
New Ideas ◽  
The Relationship ◽  
Moderating Role

While often criticized, the independence of directors remains a crucial criterion for evaluating the effectiveness of the monitoring role of boards. This study examines the relationship between board independence and earnings management, paying attention to moderation role of family ownership concentration on this relationship using a sample of services companies listed on Amman Stock Exchange ASE. This study documented a significant and negative association between board independence and earnings management. In addition, the moderating role of family ownership concentration on this relationship was also negative. Thus, the board’s monitoring function was inefficient due to the concentration of ownership. These results were obtained through using multiple and sequential regression analysis for the research data from 2013 to 2016. This study provides new ideas for future research such as examining the impacts of the migration of capitals and investors from neighbouring countries such as Syria and Iraq.

scholarly journals Earnings management, audit committee effectiveness and the role of blockholders ownership: Evidence from UK large firms

2012 ◽  
Vol 1 (4) ◽  
pp. 100-116 ◽  
Author(s):  
Murya Habbash
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Audit Committee ◽  
Family Firms ◽  
Agency Problems ◽  
Audit Committees ◽  
Effective Control ◽  
Agency Conflicts ◽  
Controlling Shareholders

The existing literature documents that the quality of financial reporting is higher when firms have effective audit committees. However, recent studies find that audit committees are not effective in family firms where agency conflicts arise between controlling and non-controlling shareholders. This study extends the previous findings by investigating the effectiveness of audit committees in firms with similar agency conflicts when one owner obtains effective control of the firm. Compared to firms with a low level of block ownership, high-blockholder firms face less agency problems due to the separation of ownership and management, but more severe agency problems between controlling (blockholders) and non-controlling shareholders (minority shareholders). Using a unique hand-collected sample, this study tests the largest 350 UK firms for three years from 2005 to 2007, and shows that firms with effective audit committees have less earnings management. This study also documents that the monitoring effectiveness of audit committees is moderated in firms with high blockholder ownership. The results are not sensitive to the endogeneity test and hold for alternative specifications of both dependent and independent variables. Overall, these findings suggest that audit committees are ineffective in mitigating the majority-minority conflict compared to their effectiveness in reducing owners-managers conflicts. These conclusions, along with some recent similar evidence (e.g., Rose, 2009 and Guthrie and Sokolowsky, 2010), may raise doubts about the monitoring role of blockholders asserted by agency theorists and widely accepted in corporate governance literature.

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