IDEAS home Printed from https://ideas.repec.org/a/bla/corgov/v15y2007i6p1413-1428.html
   My bibliography  Save this article

The Effect of the Board Composition and its Monitoring Committees on Earnings Management: evidence from Spain

Author

Listed:
  • Beatriz García Osma
  • Belén Gill‐de‐Albornoz Noguer

Abstract

We test whether corporate governance mechanisms promoted by best practice codes are effective in constraining earnings manipulation for a Spanish sample of quoted companies during the period 1999–2001. In particular, we analyse the association between earnings management and two key aspects of corporate governance: board composition and the existence of board monitoring committees. Our results show that board composition significantly determines earnings manipulation practices. However, the main role in constraining such practices is not played by independent directors, as UK and US based research suggests, but by institutional directors. No correlation is found between the existence of an independent audit committee and earnings management measures. Finally, the existence and composition of a nomination committee affects the role of independent directors in constraining earnings manipulation.

Suggested Citation

  • Beatriz García Osma & Belén Gill‐de‐Albornoz Noguer, 2007. "The Effect of the Board Composition and its Monitoring Committees on Earnings Management: evidence from Spain," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(6), pages 1413-1428, November.
    • Handle: RePEc:bla:corgov:v:15:y:2007:i:6:p:1413-1428
    DOI: 10.1111/j.1467-8683.2007.00654.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-8683.2007.00654.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1467-8683.2007.00654.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Shleifer, Andrei & Vishny, Robert W, 1997. "A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    2. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
    3. Joan Ricart & Jose¨ A´lvarez & Miguel Gallo, 1999. "Governance Mechanisms for Effective Leadership: the case of Spain," Corporate Governance: An International Review, Wiley Blackwell, vol. 7(3), pages 266-287, July.
    4. Dechow, Patricia M., 1994. "Accounting earnings and cash flows as measures of firm performance : The role of accounting accruals," Journal of Accounting and Economics, Elsevier, vol. 18(1), pages 3-42, July.
    5. Key, Kimberly Galligan, 1997. "Political cost incentives for earnings management in the cable television industry," Journal of Accounting and Economics, Elsevier, vol. 23(3), pages 309-337, November.
    6. DeFond, Mark L. & Subramanyam, K. R., 1998. "Auditor changes and discretionary accruals," Journal of Accounting and Economics, Elsevier, vol. 25(1), pages 35-67, February.
    7. Leuz, Christian & Nanda, Dhananjay & Wysocki, Peter D., 2003. "Earnings management and investor protection: an international comparison," Journal of Financial Economics, Elsevier, vol. 69(3), pages 505-527, September.
    8. Jones, Jj, 1991. "Earnings Management During Import Relief Investigations," Journal of Accounting Research, Wiley Blackwell, vol. 29(2), pages 193-228.
    9. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, April.
    10. Kasznik, R, 1999. "On the association between voluntary disclosure and earnings management," Journal of Accounting Research, Wiley Blackwell, vol. 37(1), pages 57-81.
    11. Kothari, S.P. & Leone, Andrew J. & Wasley, Charles E., 2005. "Performance matched discretionary accrual measures," Journal of Accounting and Economics, Elsevier, vol. 39(1), pages 163-197, February.
    12. Johnson, Marilyn F. & Nelson, Karen K. & Frankel, Richard M., 2002. "The Relation Between Auditor's Fees for Non-audit Services and Earnings Quality," Research Papers 1696r, Stanford University, Graduate School of Business.
    13. Klein, April, 2002. "Audit committee, board of director characteristics, and earnings management," Journal of Accounting and Economics, Elsevier, vol. 33(3), pages 375-400, August.
    14. DeAngelo, Linda Elizabeth, 1981. "Auditor size and audit quality," Journal of Accounting and Economics, Elsevier, vol. 3(3), pages 183-199, December.
    15. Teoh, Siew Hong & Welch, Ivo & Wong, T. J., 1998. "Earnings management and the underperformance of seasoned equity offerings," Journal of Financial Economics, Elsevier, vol. 50(1), pages 63-99, October.
    16. Gorm Gabrielsen & Jeffrey D. Gramlich & Thomas Plenborg, 2002. "Managerial Ownership, Information Content of Earnings, and Discretionary Accruals in a Non-US Setting," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(7&8), pages 967-988.
    17. DeFond, Mark L. & Jiambalvo, James, 1994. "Debt covenant violation and manipulation of accruals," Journal of Accounting and Economics, Elsevier, vol. 17(1-2), pages 145-176, January.
    18. Gaver, Jennifer J. & Gaver, Kenneth M. & Austin, Jeffrey R., 1995. "Additional evidence on bonus plans and income management," Journal of Accounting and Economics, Elsevier, vol. 19(1), pages 3-28, February.
    19. Beneish, Messod D., 1997. "Detecting GAAP violation: implications for assessing earnings management among firms with extreme financial performance," Journal of Accounting and Public Policy, Elsevier, vol. 16(3), pages 271-309.
    20. Warfield, Terry D. & Wild, John J. & Wild, Kenneth L., 1995. "Managerial ownership, accounting choices, and informativeness of earnings," Journal of Accounting and Economics, Elsevier, vol. 20(1), pages 61-91, July.
    21. K.V. Peasnell & P.F. Pope & S. Young, 2005. "Board Monitoring and Earnings Management: Do Outside Directors Influence Abnormal Accruals?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7-8), pages 1311-1346.
    22. Gill-de-Albornoz, Belen & Illueca, Manuel, 2005. "Earnings management under price regulation: Empirical evidence from the Spanish electricity industry," Energy Economics, Elsevier, vol. 27(2), pages 279-304, March.
    23. Byrd, John W. & Hickman, Kent A., 1992. "Do outside directors monitor managers? *1: Evidence from tender offer bids," Journal of Financial Economics, Elsevier, vol. 32(2), pages 195-221, October.
    24. Benjamin E. Hermalin & Michael S. Weisbach, 2003. "Boards of directors as an endogenously determined institution: a survey of the economic literature," Economic Policy Review, Federal Reserve Bank of New York, vol. 9(Apr), pages 7-26.
    25. Stephen D. Makar & Pervaiz Alam, 1998. "Earnings Management and Antitrust Investigations: Political Costs Over Business Cycles," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(5&6), pages 701-720.
    26. Kang, Sh & Sivaramakrishnan, K, 1995. "Issues In Testing Earnings Management And An Instrumental Variable Approach," Journal of Accounting Research, Wiley Blackwell, vol. 33(2), pages 353-367.
    27. Steve Lin & Peter F. Pope & Steven Young, 2003. "Stock Market Reaction to the Appointment of Outside Directors," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(3-4), pages 351-382.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nooraisah Katmon & Omar Al Farooque, 2017. "Exploring the Impact of Internal Corporate Governance on the Relation Between Disclosure Quality and Earnings Management in the UK Listed Companies," Journal of Business Ethics, Springer, vol. 142(2), pages 345-367, May.
    2. Carlos F. Alves & Ernesto Fernando R. Vicente, 2013. "Does the Latin model of corporate governance perform worse than other models in preventing earnings management?," Applied Financial Economics, Taylor & Francis Journals, vol. 23(21), pages 1663-1673, November.
    3. Chien Mu Yeh, 2020. "The influence of foreign institutional investors, institutional directors, and the share pledge ratio of directors on financial performance of tourism firms," Tourism Economics, , vol. 26(1), pages 179-201, February.
    4. McWay, Ryan & Saona, Paolo & Muro, Laura & Jara, Mauricio, 2019. "Contrasting Incentives for Earnings Management: Board Activity and Board Remuneration in Spanish Firms," OSF Preprints xgn3y, Center for Open Science.
    5. Giuseppe Ianniello, 2015. "The effects of board and auditor independence on earnings quality: evidence from Italy," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 19(1), pages 229-253, February.
    6. Marina Afzal, Muhammad Danish Habib, 2018. "Corporate Governance and Earnings Management: A Model and Empirical Investigation from Karachi Stock Exchange," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 3(2), pages 51-67, October.
    7. C. Piot & L. Kermiche, 2009. "A quoi servent les comités d'audit ? Un regard sur la recherche empirique," Post-Print halshs-00537952, HAL.
    8. Greco, Giulio, 2012. "Ownership structures, corporate governance and earnings management in the European Oil Industry," MPRA Paper 37198, University Library of Munich, Germany.
    9. Jesus Sáenz González & Emma García-Meca, 2014. "Does Corporate Governance Influence Earnings Management in Latin American Markets?," Journal of Business Ethics, Springer, vol. 121(3), pages 419-440, May.
    10. Javier Andrés Suárez & Elena Cabal García & Carlos Fernández Méndez & Camino Rodríguez Gutiérrez, 2013. "The effectiveness of the audit committee in Spain: implications of its existence on the auditor’s opinion," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 4(3), pages 333-352, August.
    11. Elena DOBRE & Laura BRAD, 2015. "Financial audit – feckless for economic re-launch," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(2(603), S), pages 151-162, Summer.
    12. Mangena, Musa & Priego, Alba Maria & Manzaneque, Montserrat, 2020. "Bank power, block ownership, boards and financial distress likelihood: An investigation of Spanish listed firms," Journal of Corporate Finance, Elsevier, vol. 64(C).
    13. Abdullah Iqbal & Norman Strong, 2010. "The effect of corporate governance on earnings management around UK rights issues," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 6(3), pages 168-189, June.
    14. García Osma, Beatriz & Guillamón-Saorín, Encarna, 2011. "Corporate governance and impression management in annual results press releases," Accounting, Organizations and Society, Elsevier, vol. 36(4), pages 187-208.
    15. Ferrer García, Cristina & Laínez Gadea, José Antonio, 2013. "Detectando diferencias en la medición de la calidad del resultado: evidencia empírica para empresas españolas || Detecting Differences on the Earnings Quality Measurement: Empirical Evidence on Spanis," Revista de Métodos Cuantitativos para la Economía y la Empresa = Journal of Quantitative Methods for Economics and Business Administration, Universidad Pablo de Olavide, Department of Quantitative Methods for Economics and Business Administration, vol. 16(1), pages 5-28, December.
    16. Chen, Ester & Gavious, Ilanit, 2016. "Complementary relationship between female directors and financial literacy in deterring earnings management: The case of high-technology firms," Advances in accounting, Elsevier, vol. 35(C), pages 114-124.
    17. Bona-Sánchez, Carolina & García-Meca, Emma & Pérez-Alemán, Jerónimo, 2018. "Earnings informativeness and institutional investors on boards," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 21(1), pages 73-81.
    18. Stockmans, Annelies & Lybaert, Nadine & Voordeckers, Wim, 2013. "The conditional nature of board characteristics in constraining earnings management in private family firms," Journal of Family Business Strategy, Elsevier, vol. 4(2), pages 84-92.
    19. Carmen Lorca & Juan Sánchez-Ballesta & Emma García-Meca, 2011. "Board Effectiveness and Cost of Debt," Journal of Business Ethics, Springer, vol. 100(4), pages 613-631, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jorge Farinha & Luis Filipe Viana, 2006. "Board structure and modified audit opinions: the case of the Portuguese Stock Exchange," CEF.UP Working Papers 0609, Universidade do Porto, Faculdade de Economia do Porto.
    2. Dechow, Patricia & Ge, Weili & Schrand, Catherine, 2010. "Understanding earnings quality: A review of the proxies, their determinants and their consequences," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 344-401, December.
    3. Paul Hribar & D. Craig Nichols, 2007. "The Use of Unsigned Earnings Quality Measures in Tests of Earnings Management," Journal of Accounting Research, Wiley Blackwell, vol. 45(5), pages 1017-1053, December.
    4. Marra, Antonio & Mazzola, Pietro & Prencipe, Annalisa, 2011. "Board Monitoring and Earnings Management Pre- and Post-IFRS," The International Journal of Accounting, Elsevier, vol. 46(2), pages 205-230, June.
    5. Justin Y. Jin, 2013. "Investor Attention and Earnings Management around the World," Accounting Perspectives, John Wiley & Sons, vol. 12(2), pages 165-187, June.
    6. Fung, Simon Y.K. & Goodwin, John, 2013. "Short-term debt maturity, monitoring and accruals-based earnings management," Journal of Contemporary Accounting and Economics, Elsevier, vol. 9(1), pages 67-82.
    7. Jeong†Bon Kim & Cheong H. Yi, 2006. "Ownership Structure, Business Group Affiliation, Listing Status, and Earnings Management: Evidence from Korea," Contemporary Accounting Research, John Wiley & Sons, vol. 23(2), pages 427-464, June.
    8. Jesus Sáenz González & Emma García-Meca, 2014. "Does Corporate Governance Influence Earnings Management in Latin American Markets?," Journal of Business Ethics, Springer, vol. 121(3), pages 419-440, May.
    9. Tsipouridou, Maria & Spathis, Charalambos, 2012. "Earnings management and the role of auditors in an unusual IFRS context: The case of Greece," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 21(1), pages 62-78.
    10. Jiang, Fuxiu & Ma, Yunbiao & Wang, Xue, 2020. "Multiple blockholders and earnings management," Journal of Corporate Finance, Elsevier, vol. 64(C).
    11. Joseph B. Omonuk & Jean Baptiste Koffi Dodor, 2016. "Do US electric utilities use industry-specific generally accepted accounting principles to manage earnings?," International Journal of Economics and Accounting, Inderscience Enterprises Ltd, vol. 7(2), pages 101-115.
    12. Naeem Tabassum & Satwinder Singh, 2020. "Corporate Governance and Organisational Performance," Springer Books, Springer, number 978-3-030-48527-6, June.
    13. Mohamed Khalil & Aydin Ozkan, 2016. "Board Independence, Audit Quality and Earnings Management: Evidence from Egypt," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 15(1), pages 84-118, April.
    14. Ruqia Shaikh & Guo Fei & Muhammad Shaique & Muhammad Rizwan Nazir, 2019. "Control-Enhancing Mechanisms and Earnings Management: Empirical Evidence from Pakistan," JRFM, MDPI, vol. 12(3), pages 1-23, August.
    15. Benjamin T. Albersmann & Daniela Hohenfels, 2017. "Audit Committees and Earnings Management – Evidence from the German Two-Tier Board System," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 18(2), pages 147-178, May.
    16. In‐Mu Haw & Bingbing Hu & Lee‐Seok Hwang & Woody Wu, 2004. "Ultimate Ownership, Income Management, and Legal and Extra‐Legal Institutions," Journal of Accounting Research, Wiley Blackwell, vol. 42(2), pages 423-462, May.
    17. Martínez-Ferrero, Jennifer & Prado-Lorenzo, José Manuel & Fernández-Fernández, José Miguel, 2013. "Responsabilidad social corporativa vs. responsabilidad contable," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 16(1), pages 32-45.
    18. Zhang, Yuyang & Uchida, Konari & Bu, Hua, 2013. "How do accounting standards and insiders' incentives affect earnings management? Evidence from China," Emerging Markets Review, Elsevier, vol. 16(C), pages 78-99.
    19. Susana Callao & José I. Jarne & David Wróblewski, 2019. "A New Perspective on Earnings Management in Emerging European Countries: Investigation on Environmental Factors that Explain Differences in Earnings Management," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 7(2), pages 59-81.
    20. Mohammed Mehadi Masud Mazumder, 2017. "Re-examination of the Non-linear Relationship Between Management Ownership and Earnings Management: Evidence from Japan," Indian Journal of Corporate Governance, , vol. 10(1), pages 1-23, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:corgov:v:15:y:2007:i:6:p:1413-1428. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0964-8410&site=1 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.