Board Interlocks and Earnings Management Contagion

Peng-Chia Chiu; Siew Hong Teoh; Feng Tian
May 2013
Accounting Review;May2013, Vol. 88 Issue 3, p915
Academic Journal
We test whether earnings management spreads between firms via shared directors. We find that a firm is more likely to manage earnings when it shares a common director with a firm that is currently managing earnings and is less likely to manage earnings when it shares a common director with a non-manipulator. Earnings management contagion is stronger when the shared director has a leadership or accounting-relevant position (e.g., audit committee chair or member) on its board or the contagious firm's board. Irregularity contagion is stronger than error contagion. The board contagion effect is robust to controlling for endogenous matching of firms with directors, fixed firm/director effects, incidence of M&A, industry, and contagion via a common auditor or geographical proximity. These findings support the view that board monitoring plays a key role in the contagion and quality of firms' financial reports.


Related Articles

  • How Corporate Boards Connect, in Charts. Heemskerk, Eelke // Harvard Business Review Digital Articles;4/21/2016, p2 

    The article reports on several large companies that shared board members, including Siemens, Deutsche Bank, UBS, and Shell, and cites several board members who held positions in several companies like Peter von Siemens, Hans Lutz Merkle, and Sir David Barran.

  • THE SHAREHOLDER DEMOCRACY PARADOX: AN EMPIRICAL EXAMINATION. BUCHHOLTZ, ANN K.; BROWN, JILL A.; ANDERSON, ANNE M.; SHABANA, KAREEM M. // Academy of Management Annual Meeting Proceedings;2009, Vol. 2009 Issue 1, p1 

    Recent corporate scandals have led pundits and shareholder activists to push for a stronger shareholder voice in corporate decision-making. This shareholder democracy movement has mounted a successful campaign to declassify boards in order to have a firm's entire slate of board members up for...

  • Staggered Boards and Earnings Management. Yijiang Zhao; Chen, Kung H. // Accounting Review;Sep2008, Vol. 83 Issue 5, p1347 

    The literature suggests that staggered boards may have two opposite effects on earnings management: the expropriation view emphasizes the exacerbating effect, whereas the quiet life view advocates the mitigating effect. We use two approaches to examine this issue: a small-sample test based on...

  • A Wake-Up Call for Directors. Kadlec, Daniel // Time;1/17/2005, Vol. 165 Issue 3, p14 

    Discusses how corporate boards of directors have been under close scrutiny and may now be held financially liable for accounting scandal involving the companies they govern. Details of how former directors of WorldCom personally settled lawsuits from investors to avoid going to trial; View that...

  • DIRECTORS DISSATISFIED. STEFFEE, S. // Internal Auditor;Feb2015, Vol. 72 Issue 1, p14 

    The article discusses a 2015 survey from the National Association of Corporate Directors that provides a snaptshot of boards of directors' biggest governance concerns. The survey reveals the dissatisfaction of board of directors with the quantity of information provided by management of...

  • DAS NETZ DER PERSONEN- UND KAPITALVERFLECHTUNGEN DEUTSCHER UND �STERREICHISCHER WIRTSCHAFTSUNTERNEHMEN.  // K�lner Zeitschrift f�r Soziologie & Sozialpsychologie;1984, Vol. 36 Issue 3, p585 

    The study describes common directorships and financial participations among the largest 325 German and 2S9 Austrian corporations in 1976. Several approaches to explaining the overlap among boards of directors are discussed. Whatever their causes may be, interlocks can be considered as potential...

  • The Comparison of Graph Partitioning Methods on Interlocking Directorates Network in Two-Tier Corporate Governance System. Nowak, Ondrej; Kubicek, Ales; Hnilica, Jiri // World Applied Sciences Journal;2014, Vol. 31 Issue 1, p31 

    Since board members are indirectly nominated as representatives of shareholders, companies sharing a board member may have something in common. This may include ownership structure, business groups or other forms of business cooperation. This paper introduces prerequisites to the analysis of...

  • Corporate Interlocking, Part II--The Modern Money Trust. Bunting, David // Directors & Boards;Summer76, Vol. 1 Issue 2, p27 

    The article focuses on the issue of corporate interlocking and its being viewed as a modern money trust. Interlocking is shown as the overlapping of large companies through common directors who are in a position to manipulate the economy to the detriment of the citizenry. The potential for...

  • Board of Director Contacts and Implications for Firm Performance. Smith, Kevin J. // Annual International Conference on Enterprise Marketing & Global;2015, p137 

    Boards of directors are considered the pinnacle of corporate governance and directors can provide a wealth of knowledge and resonrces to the companies they serve. Personal connections among company directors are regarded as an important phenomenon which can be used to access and mobilise...


Read the Article


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

Try another library?
Sign out of this library

Other Topics