Business, Management and Accounting
4 years ago

Financially savvy board members curb corporate earnings manipulation risks.

SSRN Electronic Journal
Earnings Management and Corporate Governance: The Roles of the Board and the Audit Committee
Biao Xie, Wallace N. Davidson, Peter J. DaDalt

Paper Summary

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The board and audit committee members with financial expertise can help prevent companies from manipulating their earnings. Meetings held by these committees also play a role in reducing the chances of earnings management. Companies with board and audit committee members who have corporate or financial backgrounds tend to have lower levels of discretionary current accruals. This suggests that the composition and activity of these committees are important in stopping managers from engaging in earnings manipulation.