TITLE

Board Interlocks and Earnings Management Contagion

AUTHOR(S)
Peng-Chia Chiu; Siew Hong Teoh; Feng Tian
PUB. DATE
May 2013
SOURCE
Accounting Review;May2013, Vol. 88 Issue 3, p915
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
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.
ACCESSION #
87541643

 

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