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The initiation of audit committee interlocks and the contagion of accounting policy choices: evidence from special items

Author

Listed:
  • Ravi Dharwadkar

    (Syracuse University)

  • David Harris

    (Syracuse University)

  • Linna Shi

    (University of Cincinnati)

  • Nan Zhou

    (University of Cincinnati)

Abstract

We document that the initiation of audit committee interlocks is associated with contagion in reported special items. We argue that this is, in part, attributable to contagion of accounting policy choices. We find that the special items of newly interlocked firms, unrelated before interlock, become positively correlated afterward, suggesting information transfer starts with interlock formation. This result holds for negative special items, key components of special items (asset impairments, restructuring costs, and gains/losses from asset sales), and is stronger for larger firms and for firms within the same industry.

Suggested Citation

  • Ravi Dharwadkar & David Harris & Linna Shi & Nan Zhou, 2020. "The initiation of audit committee interlocks and the contagion of accounting policy choices: evidence from special items," Review of Accounting Studies, Springer, vol. 25(1), pages 120-158, March.
    • Handle: RePEc:spr:reaccs:v:25:y:2020:i:1:d:10.1007_s11142-019-09516-w
    DOI: 10.1007/s11142-019-09516-w
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    More about this item

    Keywords

    Audit committee interlock; Information transfer; Special items; Restructuring charges; SFAS 146;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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