Hashim, Hafiza Aishah; Abdul Rahman, Mohd Shaari
September 2011
International Journal of Business & Social Science;2011, Vol. 2 Issue 17, p137
Academic Journal
Our paper examines the relationship between the presence of interlocked directors on a board and earnings quality. For a sample of 554 firm-years spanning 2003 to 2004, we find that the presence of interlocked directors on board is associated with higher earnings quality as measured by the accrual quality model. It shows that the presence of interlocked directors on a board provides an incentive for diligent monitoring as they have the knowledge, expertise, skill and stronger incentive to actively monitor the actions of management and improve the quality of financial reporting. The relation, however, appears non-linear. Too many members in a firm with interlocking directorates appear to deteriorate the quality of earnings. Our results underscore the importance of the corporate governance recommendations of limiting the number of directorships held by any one individual as a means of strengthening the monitoring and oversight role that the board of directors play in the financial reporting process.


Related Articles

  • ACTING FOR YOU. Sheehy, Tim // Keeping Good Companies (14447614);Dec2009, Vol. 61 Issue 11, p643 

    The article discusses executive remuneration and market integrity in relation to governance. According to the author, as of December 2009, remuneration is not only a concern for shareholders, but of wide community interest. The Productivity Commission of Australia found that it is not...

  • The role and effect of controlling shareholders in corporate governance. Courteau, Lucie; Di Pietra, Roberto; Giudici, Paolo; Melis, Andrea // Journal of Management & Governance;Sep2017, Vol. 21 Issue 3, p561 

    This paper examines two potentially contradictory effects of the presence of controlling shareholders. Controlling shareholders have been shown to be beneficial, as they generally have a long-term interest in the firm and are willing and able to monitor the actions of senior managers closely and...

  • Governance strategy and costs: board compensation in Sweden. Collin, Sven-Olof; Ponomareva, Yuliya; Ottosson, Sara; Sundberg, Nina // Journal of Management & Governance;Sep2017, Vol. 21 Issue 3, p685 

    Shareholders are not identical, but differ in their objectives and actions. One difference is the level of delegation of the principal functions to the board, which we suggest can be observed through the level of directors' compensation. We analyze the difference in board compensation through...

  • BOARD GOVERNANCE AS A DETERMINANT OF CEO COMPENSATION. Daily, Catherine M.; Johnson, Jonathan L.; Ellstrand, Alan E. // Academy of Management Best Papers Proceedings;1996, p6 

    This study examines the relationship between the board of directors and alternative measures of CEO compensation. While virtually no support was found for a systematic relationship between board composition and CEO compensation, equity holdings of outside directors serving the compensation...

  • Executive Summaries.  // Organizational Dynamics;May2003, Vol. 32 Issue 2, p104 

    The article presents abstracts of research papers published in the current issue of 'Organization Dynamics.' The first paper, titled "New HR Metrics: Scoring on the Business Scorecard," by Richard W. Beatty, Mark A. Huselid and Craig Eric Schneier, considers how and what the Human Resource...

  • 'The Governance System Is Sound'. Atwater Jr., H. B. // Directors & Boards;Spring91, Vol. 15 Issue 3, p17 

    The article presents author's comments on various issues concerning corporate governance. It states that the most important function of the board of directors is to select management. It suggests that the board should link the compensation of the management to the objectives of shareholders. It...

  • Era of harmony expected in upcoming proxy season. Burr, Barry B. // Pensions & Investments;1/21/2013, Vol. 41 Issue 2, p4 

    The article discusses corporations' release of proxy statements in early 2013, or "proxy season," with focus given to those statements released to shareholders of Walt Disney Co., Verizon Communications, and Hewlett-Packard Co. Issue addressed in such statements include executive pay, the annual...

  • Does One Hand Wash the Other? Testing the Managerial Power and Optimal Contracting Theories of Executive Compensation. Dorff, Michael B. // Journal of Corporation Law;Winter2005, Vol. 30 Issue 2, p255 

    Argues that corporate governance reform should focus on minimizing managerial power over directors through mechanisms such as truly competitive elections for directors. Use of an experimental model of the executive compensation process; Argument of the Optimal Contracting Hypothesis that boards...

  • A Wish List for Comp Committees. Hall, Steven // NACD Directorship;Jan/Feb2014, Vol. 40 Issue 1, p60 

    The author predicts issues that directors of corporations will face in 2014 and offers advice on dealing with them. He recommends drafting the 2014 Compensation Discussion and Analysis (CD&A) early on and to write it clearly in a graphic-intensive format. He reminds corporate boards that past...


Read the Article


Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics