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Non-Traditional Director Departure and Earning Management

Anh Do, Dimitrios Gounopoulos, David Newton

SSRN Electronic Journal

Swansea University Author: Anh Do

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DOI (Published version): 10.2139/ssrn.4766517

Abstract

It is hypothesized that the practice of earnings management is systematically related to the strength of internal corporate governance mechanisms, including the board of directors, the audit committee, the internal audit function and the choice of the external auditor. However, the role of non-tradi...

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Published in: SSRN Electronic Journal
ISSN: 1556-5068
Published: Elsevier BV
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URI: https://cronfa.swan.ac.uk/Record/cronfa67505
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Abstract: It is hypothesized that the practice of earnings management is systematically related to the strength of internal corporate governance mechanisms, including the board of directors, the audit committee, the internal audit function and the choice of the external auditor. However, the role of non-traditional directors has not yet been positioned in the determinants of earnings management literature. This study aims to fill in the gap of effects of corporate governance toward earning managements regarding the non-traditional director character. Using panel data on U.S public firms, we document a negative effect of non-traditional director departure on earning management. We establish causality of non-traditional director departure on earnings management and real earning management using difference-in-difference approach that exploits an exogenous shock to board composition, namely, the mandate of a majority of outside directors on company boards by NYSE and NASDAQ in response to the passage of Sarbanes-Oxley Act in 2002.
Item Description: Preprint article before certification by peer review.
College: Faculty of Humanities and Social Sciences

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