Influence of board interlocking on earnings management

ABSTRACT The participation of directors on more than one board is called “board interlocking”. This phenomenon contributes to the spread of management and governance practices, through directors sharing their knowledge and experiences on other boards. Thus, directors could “carry” the earnings management practices present in one company into another in which they sit on the board. It is assumed that the greater directors’ direct or indirect connections on boards, the greater the sharing of information, especially information that can be reflected in company earnings quality. In light of the above, the aim of this study is to verify the influence of board interlocking on earnings management in companies listed on the São Paulo Stock, Commodities, and Futures Exchange (BM&FBovespa). The study is characterized as descriptive, quantitative, and documentary, and uses a sample of companies listed on the BM&FBOVESPA between 2011 and 2013. For earnings management, the model from Kang and Sivaramakrishnan (1995) was used, while for interlocking, degree centrality measures were used for direct board member connections, and intermediation centrality for indirect connections. The results indicate that earnings management is influenced by the interlocking of board members. It is concluded that the greater the degree centrality, the greater positive earnings management is, and that variations in positive and negative accruals are influenced by board member intermediation. The results reinforce the idea that earnings management behavior can be transferred between companies by the directors that make up their boards.

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What makes a board director better connected? Evidence from graph theory

Computer Science and Information Systems ◽

10.2298/csis190628045s ◽

2020 ◽

Vol 17 (2) ◽

pp. 357-377

Author(s):

Laleh Samarbakhsh ◽

Boza Tasic

Keyword(s):

Betweenness Centrality ◽

Board Member ◽

Centrality Measures ◽

Board Members ◽

Degree Centrality ◽

Gender And Education ◽

Board Directors ◽

Board Director ◽

High Level ◽

The Impact

We are interested in quantifying and uncovering the relationships that form between the board directors of companies. Using these relationships we compute three network centrality measures for each director in the network and employ them in the analysis of connectedness of directors. Our focus in this study is on the attributes that make a board member better connected. The biological, educational and experiential attributes are used as independent variables to develop a regression model measuring the impact on the three connectivity measures (degree, betweenness and closeness). Our results show that ?Age? has a direct significant impact on all connectedness measures of a board member. We also find that female directors have a higher measure of degree centrality and betweenness centrality, but lower closeness. The number of foreign degrees increases the degree centrality and betweenness centrality but not closeness. The three identified characteristics of ?Age?, ?Gender?, and ?Education? are supporting the idea that a high level of social connection can in part be expected by the characteristics of individual board members and can explain up to 25% of the board member?s connectivity.

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A comparison of ethical perceptions of earnings-management practices

South African Journal of Economic and Management Sciences ◽

10.4102/sajems.v14i4.86 ◽

2011 ◽

Vol 14 (4) ◽

pp. 422-435 ◽

Cited By ~ 3

Author(s):

Leonie Jooste

Keyword(s):

Earnings Management ◽

Management Practices ◽

Earnings Quality ◽

Harvard Business Review ◽

Business Managers ◽

Short Term ◽

Nelson Mandela ◽

Sarbanes Oxley ◽

The Usa ◽

Accounting Practitioners

In 1990, Bruns and Merchant (1990) surveyed earnings-management practices and asked the readership of the Harvard Business Review to rate the acceptability of those practices. Prior to the Bruns and Merchant (1990) study, the morality of short-term earnings-management was of little concern to researchers and accounting practitioners. However, in the light of increased financial frauds and failures, new and increased emphasis has been placed on the importance of the concepts of earnings quality and earnings-management practices.Despite increased research focusing on business ethics since 1990, there is little evidence that the profession is educating accountants about earnings-management practices. This study compares the results of studies on earnings-management practices. Students and business managers were surveyed at the Nelson Mandela Metropolitan University (NMMU) and these results were compared to studies prior to the Sarbanes-Oxley Act 2002 in the USA. The aim of the study is to determine if there have been changes in attitudes towards earnings-management practices since the acceptance of the Sarbanes-Oxley Act.

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INVESTOR SENTIMENT AND EARNINGS MANAGEMENT: DOES ANALYSTS’ MONITORING MATTER?

RAM Revista de Administração Mackenzie ◽

10.1590/1678-6971/eramf180104 ◽

2018 ◽

Vol 19 (4) ◽

Author(s):

KLÉBER F. MIRANDA ◽

MÁRCIO A. V. MACHADO ◽

LUCIANA A. F. MACEDO

Keyword(s):

Earnings Management ◽

Fixed Effects ◽

Management Practices ◽

Earnings Quality ◽

Investor Sentiment ◽

Mediating Role ◽

Market Participants ◽

Initial Expectation ◽

Reported Earnings

ABSTRACT Purpose: Under the assumption that managers have incentives to practice earnings management in optimistic moments, this paper aims to analyze whether analysts’ monitoring affects the relation between the discretionary accumulations (accruals) and investor sentiment in the Brazilian capital market. Originality/value: The mediating role of analysts in the relation between investor sentiment and earnings management was not identified in the literature establishing an important gap to be investigated, given the relevance of the reported earnings for the decision-making process of market participants. Design/methodology/approach: Fixed effects regressions (industry and quarter) were estimated from 2010 to 2016, using all data and the subsetting sample according to whether or not companies were monitored by analysts. Findings: The results showed a reduction of earnings management after optimistic moments, which differs from the initial expectation and such behavior is attributed to the presence of analysts following companies. The results were robust to alternative proxies for earnings management and investor sentiment. Analysts have an influence on accounting earnings supporting the best disclosure, so inhibiting the practice of earnings management in optimistic moments. Therefore, although previous studies suggest that earnings management practices increase during optimistic moments, market participants may consider, even in such moments, a better earnings quality when firms are monitored by analysts.

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Earnings management and corporate investment efficiency: does the board of directors matter?

Journal of Financial Reporting and Accounting ◽

10.1108/jfra-06-2018-0044 ◽

2019 ◽

Vol 17 (4) ◽

pp. 650-670 ◽

Cited By ~ 4

Author(s):

Bilel Bzeouich ◽

Faten Lakhal ◽

Neila Dammak

Keyword(s):

Earnings Management ◽

Board Of Directors ◽

Management Practices ◽

Earnings Quality ◽

Theoretical Perspective ◽

Negative Relationship ◽

Corporate Investment ◽

Investment Efficiency ◽

Content Type ◽

The Relationship

PurposeThe purpose of this paper is to examine the relationship between earnings management and the efficiency of French firms’ investments. It also investigates the moderating effect of board of directors’ features on this relation.Design/methodology/approachThis study is based on a sample of French listed companies from 2011 to 2015, i.e. 435 firm-year observations. The authors use the instrumental variable method based on 2SLS models.FindingsThe authors show that there is a negative relationship between earnings management and investment efficiency. This finding supports the theoretical perspective of the agency theory, as the propensity of firms to engage in earnings management practices is associated with high managerial opportunistic behavior and asymmetric information issues, leading to the problem of under and overinvestment. The findings also show that board size, independence and gender diversity are positively associated with investment efficiency. These board features moderate the relationship between earnings management and investment efficiency suggesting that earnings quality plays a more prominent role in guiding managers to choose the right investments when the corporate governance environment is strong.Research limitations/implicationsThe negative relationship between earnings management and investment efficiency suggests that firms with lower earnings quality are exposed to high information asymmetries. They are then more likely to deviate from their expected level of investments. In addition, the results highlight the importance of corporate financial transparency and board monitoring to reduce agency costs and ensure the efficiency of corporate investments, particularly in a setting where investors’ interests are poorly protected.Originality/valueThis paper is the first to the best of the authors’ knowledge to examine the effect of earnings management, a metric for earnings quality, on the corporate investment efficiency in France. Besides, they extend previous literature by investigating how board features are able to monitor managerial actions and decisions and therefore to moderate the effect of earnings management on investment efficiency.

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An exploratory analysis of earnings management practices in Australia and New Zealand

International Journal of Accounting and Information Management ◽

10.1108/ijaim-09-2016-0087 ◽

2018 ◽

Vol 26 (1) ◽

pp. 81-114 ◽

Cited By ~ 3

Author(s):

Lan Sun ◽

Omar Al Farooque

Keyword(s):

New Zealand ◽

Earnings Management ◽

Financial Reporting ◽

Management Practices ◽

Earnings Quality ◽

Content Type ◽

Long Run ◽

Reform Period ◽

Before And After ◽

Short Run

PurposeThis study aims to explore corporate earnings management practices in Australia and New Zealand before and after the regulatory changes and corporate governance reforms. The study argues that the effectiveness of regulatory reforms has to be reflected in constraining earnings management in post-reform period as compared to pre-reform period.Design/methodology/approachUsing a sample of 3,966 firm-year observations, including all ASX and NZX listed firms for the period 2001-2006, the study examines earnings management practices in both countries in pre- and post-reform periods with appropriate statistical methods.FindingsThe results indicate some interesting phenomenon: the magnitude of earnings management did not decline after the governance reform as a positive time trend is observed in the entire sample as well as in Australian and New Zealand sub-samples, suggesting that earnings management has been growing over time. Additional test indicates no structural change has occurred before and after the new regulations. The shifting from decreasing earnings management to increasing earnings management can be interpreted as an evidence that earnings become more ‘informative’ in a more transparent disclosure regime to capture short-run benefits from regulator reforms.Research limitations/implicationsThe shifting of earnings management behaviour from decreasing to increasing income can be interpreted as the outcome of more “informative”, rather than “deliberate”, earnings management in a more transparent disclosure regime to capture short-run benefits of regulatory reforms, which is worth further investigation. The findings of the study can lead regulatory authorities taking appropriate measures to promote earnings quality in corporate financial reporting from a long-run decision usefulness context. Any future reforms should be directed to protecting the interest of stakeholders as well as ensuring benefits outweighing costs for them.Practical implicationsThe findings of the study can lead regulatory authorities in taking appropriate measures to promote earnings quality in corporate financial reporting from a long-run decision usefulness context.Originality/valueThe study adds value to the existing earnings management literature as well as effectiveness of regulations for the benefit of wider stakeholder groups.

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PENGARUH EARNINGS MANAGEMENT TERHADAP FUTURE PROFITABILITY TERKAIT DENGAN OWNERSHIP STRUCTURE, FIRM SIZE DAN CORPORATE GOVERNANCE PRACTICES

JURNAL INFORMASI, PERPAJAKAN, AKUNTANSI, DAN KEUANGAN PUBLIK ◽

10.25105/jipak.v9i1.4525 ◽

2019 ◽

Vol 9 (1) ◽

pp. 71

Author(s):

Ikhsan Yudha Asmara ◽

Felizia Arni Rudiawarni

Keyword(s):

Corporate Governance ◽

Earnings Management ◽

Firm Size ◽

Ownership Structure ◽

Audit Committee ◽

Board Member ◽

Audit Quality ◽

Governance Practices ◽

Governance Practice ◽

Corporate Governance Practice

Penelitian ini bertujuan untuk mengetahui bagaimana pengaruh earnings management terhadap future profitability badan usaha yang bergerak di sektor manufaktur yang terdaftar di Bursa Efek Indonesia, dan bagaimana efek dari struktur kepemilikan, ukuran perusahaan, dan praktik corporate governance (yang diproksikan oleh audit quality, independent board member, dan audit committee) terkait dampak earnings management terhadap future profitability badan usaha sektor manufaktur yang terdaftar di BEI. Penelitian ini menggunakan sampel berupa perusahaan sektor manufaktur yang terdaftar di PT Bursa Efek Indonesia pada periode 2008-2010. Jumlah sampel yang digunakan pada peneiitian ini adalah sebanyak 262 observasi. Metode pengambilan sampel yang digunakan adalah probability sampling — judgment/purposive sampling. Variabel independen yang digunakan pada penelitian ini adalah earnings management (diproksikan oleh CFO, NDAC, dan DAC), ownership structure (diproksikan oleh DFAM dan INST), firmsize, dan corporate governance practice (diproksikan oleh AUDIT, BOD, dan AUDCOM). Variabel dependcn pada penelitian ini adalah future profitability yang diproksikan oleh variabel LIEARNt+1 dan CF0t41. Hasil dari penelitian ini adalah (1) earnings management terbukti pengaruh yang signifikan terhadap future profitability badan usaha sektor manufaktur. Pengaruh yang muncul berbeda tergantung pada proksi yang digunakan; (2) ownership structure ternyata tidak memiliki pengaruh terhadap perilaku earnings management terkait future profitability badan usaha sektor manuiaktur; (3) firmsize tidak mempengaruhi perilaku earnings management terkait future profitability badan usaha sektor manufaktur; corporate governance practice secara keseluruhan tidak efektif dalam mempengaruhi perilaku earnings management terkait future profitability badan usaha sektor manufaktur.

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The Ethics Of Managing Short-Term Earnings: Business Managers And Business Students Rate Earnings Management Practices Implications For Academia

Journal of College Teaching & Learning (TLC) ◽

10.19030/tlc.v3i7.1702 ◽

2006 ◽

Vol 3 (7) ◽

Cited By ~ 2

Author(s):

Don E. Giacomino ◽

Jodi L. Bellovary ◽

Michael D. Akers

Keyword(s):

Earnings Management ◽

Management Practices ◽

Business Students ◽

Earnings Quality ◽

Harvard Business Review ◽

Business Managers ◽

Academic Journals ◽

Short Term ◽

Management Actions ◽

Accounting Practitioners

In 1990, Bruns and Merchant surveyed the readership of the Harvard Business Review (HBR). Their survey asked HBR readers to rate the acceptability of earnings management practices. Prior to that study, researchers and accounting practitioners paid little attention to the morality of short-term earnings management. However, in the wake of highly publicized financial frauds and failures, the profession and academic journals have emphasized the importance of the concepts of earnings quality and earnings management.The Bruns and Merchant survey provided 13 earnings management situations and asked the HBR readers to rate the acceptability of those practices. In this study, we surveyed students and business managers to measure their perceptions about the morality of specific earnings management actions to determine if their perceptions are different from those of the HBR readers 15 years ago. This article also compares the results of our study with several other studies that used the Bruns & Merchant instrument during the most recent 15 years. Based on our findings, we discuss implications for academia.

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What Form of Visibility Affects Earnings Management? Evidence from Italian Family and Non-Family Firms

Administrative Sciences ◽

10.3390/admsci9010020 ◽

2019 ◽

Vol 9 (1) ◽

pp. 20 ◽

Cited By ~ 2

Author(s):

Giovanna Gavana ◽

Pietro Gottardo ◽

Anna Moisello

Keyword(s):

Earnings Management ◽

Family Firms ◽

Management Practices ◽

Earnings Quality ◽

Family Businesses ◽

Firm Age ◽

Unethical Practices ◽

Financial Communication ◽

The Relationship ◽

Financial Press

This paper addresses the issue of financial communication quality by studying the determinants of earnings management practices in family and non-family businesses. Previous literature has highlighted the effect of a company’s size, as a form of visibility, on earnings management practices. This study focuses on the analysis of the relationship between different forms of visibility—exposure to financial press, proximity to the consumer, size of assets, sales and firm age—and earnings quality. The results show that the forms of visibility taken into consideration have a different effect on earnings management practices. Furthermore, they show that family businesses are less likely to resort to these unethical practices, especially in the presence of financial press exposure and proximity of the business to the consumer.

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Pengaruh Manajemen Laba terhadap Peringkat Obligasi pada Saat Emisi

Jurnal Maksipreneur Manajemen Koperasi dan Entrepreneurship ◽

10.30588/jmp.v3i2.154 ◽

2014 ◽

Vol 3 (2) ◽

pp. 34

Author(s):

Tri Wahyudi ◽

Bambang Sugeng Dwiyanto

Keyword(s):

Regression Analysis ◽

Earnings Management ◽

Multiple Regression Analysis ◽

Multiple Regression ◽

Sampling Method ◽

Management Practices ◽

Management Behavior ◽

Bond Rating ◽

Purposive Sampling ◽

Test For Normality

This study was conducted to prove empirically the earnings management practices related to its influence on the bond rating. The data of this study were 36 companies that issued bonds listed on Valuation, published in 2010-2012. Sampling method using purposive sampling method. Detection of earnings management behavior in this study using the Modified Jones Model (1995). Data were analyzed using classical assumption, namely: autocorrelation, heteroscedasticity test, and test for normality. Hypothesistesting using multiple regression analysis with SPSS16.

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Board of Directors’ Interest in Share Ownership and Earnings Management

Indian-Pacific Journal of Accounting and Finance ◽

10.52962/ipjaf.2019.3.1.63 ◽

2019 ◽

Vol 3 (1) ◽

pp. 33-40

Author(s):

Philip Jehu ◽

Mohammad Azhar Ibrahim

Keyword(s):

Corporate Governance ◽

Earnings Management ◽

Board Of Directors ◽

Management Practices ◽

Board Members ◽

Managerial Ownership ◽

Executive Directors ◽

Managerial Opportunism ◽

Opportunistic Behaviour ◽

Board Ownership

In this study, we examine the effect of directors’ ownership on earnings management practices. Explicitly, we draw from the agency theory to distinguish between ownership by non-executive directors and ownership by executive directors to investigate reasons for directors and managerial opportunistic behaviour. Utilising data from a sample of 864-firm-year observations ranging from 2009 to 2017 period, we test our hypothesis through OLS regression. We find that non-executive directors’ interests in shareholding are significantly associated with higher levels of earnings management. We observed a decrease in abnormal accruals on the overall basis of the combined ownership of both executive and non-executive directors. Overall, ownership by all directors combined significantly reduces managerial opportunism. By contrast, there is no evidence that executive directors’ ownership mitigates managerial opportunism. This paper contributes to corporate governance literature, particularly when the independence of board members is essential. This study disaggregates board ownership into executive holdings and non-executive holdings, dimensions which were hitherto rendered as managerial ownership or board ownership. These findings imply firms’ corporate governance policy and regulations.

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