Earnings management and board activity: an additional evidence
Purpose – The purpose of this paper is to examine the relation between earnings management behavior and the activity of both the board and audit committee. Design/methodology/approach – Different models to isolate abnormal accruals as a proxy for earnings management are applied to a sample of manufacturing companies. Findings – Earnings management is negatively related to both board and audit committee independence. Such negative relation is stronger when the audit committee is more active. However, this result is not valid for the board activity. Research limitations/implications – Results are limited by the accuracy of the models applied to isolate abnormal accruals. Practical implications – Results may have implications for corporate governance regulations such as board composition, audit committee composition, and their activity. Originality/value – Results of earnings management research are sensitive to the different models suggested in literature to isolate the abnormal accruals.
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