Earnings management and corporate governance外文.pdf

Journal of Corporate Finance 9 (2003) 295– 316 /locate/econbase Earnings management and corporate governance: the role of the board and the audit committee Biao Xie a, Wallace N. Davidson III a,*, Peter J. DaDalt b aDepartment of Finance, Mailcode 4626, Southern Illinois University, Carbondale, IL 62901, USA bDepartment of Finance, J. Mack Robinson College of Business, Georgia State University, 35 Broad St., Atlanta, GA 30303-3087, USA Accepted 15 January 2002 Abstract We examine the role of the board of directors, the audit committee, and the executive committee in preventing earnings management. Supporting an SEC Panel Report’s conclusion that audit committee members need financial sophistication, we show that the composition of a board in general and of an audit committee more specifically, is related to the likelihood that a firm will engage in earnings management. Board and audit committee members with corporate or financial backgrounds are associated with firms that have smaller discretionary current accruals. Board and audit committee meeting frequency is also associated with reduced levels of discretionary current accruals. We conclude that board and audit committee activity and their members’ financial sophistication may be important factors in constraining the propensity of managers to engage in earnings management. D 2002 Elsevier Science B.V. All rights reserved. Keywords: Board of directors; Earnings management; Audit committee 1. Introduction Earnings management has recently received considerable attention by regulators and the popular press. In a September 1998 speech to lawyers and CPAs, Arthur Levitt, cha