Young, C. S., Tsai, L. C., Chen, C. H., and Liao, S. T. 2012. Board Characteristics and Real Earnings Management. NTU Management Review, 23 (1): 363-400. https://doi.org/10.6226/NTURM2012.OCT.R12027
Chaur-Shiuh Young, Professor, Department of Accountancy and Graduate Institute of Finance & Banking, National Cheng Kung University
Liu-Ching Tsai, Professor, Department of Banking and Finance, National Chia-Yi University
Chia-Hui Chen, Ph.D. Student, Department of Accountancy and Graduate Institute of Finance & Banking, National Cheng Kung University
Ssu-Ting Liao, Auditor, Deloitte & Touche
Abstract
This study combines the real-earnings-management literature and the corporate-governance literature to examine how board characteristics affect real earnings management induced by benchmark meeting/beating incentives. Using a sample of U.S. listed companies over the period of 2003-2006, we find that managers are more likely to exercise real earnings management in order to avoid negative earnings, sustain prior year’s earnings or meet/beat analysts’ consensus earnings forecast. With regard to the role of board characteristics, our results indicate that boards with higher independence and professionalism can effectively constrain earnings-thresholds-induced real earnings management. Our overall findings are consistent with the notion that board governance plays a vital role in restraining real earnings management.
Keywords
board characteristics real earnings management threshold incentives