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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27455
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| Title: | Audit Committee Financial Expertise, Competing Corporate Governance
Mechanisms, and Earnings Management |
| Authors: | Carcello, Joseph V.
Hollingsworth, Carl W.
Klein, April |
| Keywords: | earnings management
real earnings management
corporate governance
Sarbanes-Oxley |
| Issue Date: | Feb-2006 |
| Series/Report no.: | April Klein-6 |
| Abstract: | A prime objective of the Sarbanes-Oxley Act and recent changes to stock
exchange listing standards is to improve the quality of financial
reporting. We examine the associations between audit committee financial
expertise and alternate corporate governance mechanisms and earnings
management. We find that both accounting and certain types of
non-accounting financial expertise reduce earnings management for firms
with weak alternate corporate governance mechanisms, but that
independent audit committee members with financial expertise are most
effective in mitigating earnings management. Importantly we find that
alternate corporate governance mechanisms are an effective substitute
for audit committee financial expertise in constraining earnings
management. Finally, we find either no association or a positive
association between financial expertise and real earnings management.
Our results suggest that alternate governance approaches are equally
effective in improving the quality of financial reporting, and that
firms should have the flexibility to design the particular set of
governance mechanisms that best fit their unique situations. |
| URI: | http://hdl.handle.net/2451/27455 |
| Appears in Collections: | Accounting Working Papers
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