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Audit committee financial expertise and earnings management: The role of status

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  • Badolato, Patrick G.
  • Donelson, Dain C.
  • Ege, Matthew

Abstract

Regulatory pressure to increase both audit committee financial expertise and board independence has resulted in lower status for audit committees relative to management. This status differential is relevant because expertise and relative status are important determinants of each party׳s ability to influence outcomes, particularly when parties face conflicting goals. We find that audit committees with both financial expertise and high relative status are associated with lower levels of earnings management, as measured by accounting irregularities and abnormal accruals. These results speak to benefits and limitations of financial expertise, which have been the focus of considerable debate.

Suggested Citation

  • Badolato, Patrick G. & Donelson, Dain C. & Ege, Matthew, 2014. "Audit committee financial expertise and earnings management: The role of status," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 208-230.
    • Handle: RePEc:eee:jaecon:v:58:y:2014:i:2:p:208-230
    DOI: 10.1016/j.jacceco.2014.08.006
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    More about this item

    Keywords

    Audit committees; Earnings management; Status; Financial expertise;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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