Online external attention vicariously monitors real earnings management along interlocking directors

Considering firms socially learn real earnings management (REM) via interlocking directors, we examine whether the monitoring effect of online external attention on REM would also spread during this social learning process, generating the vicarious monitoring effect. Based on Chinese listed firms from 2008 to 2023, we build a spatial regression model with time-varying matrix to verify the existence of this vicarious monitoring effect. This spatial method allows us to estimate the marginal magnitude of social learning and vicarious monitoring on REM per unit interlocking director, as well as higher-order interlocking relationships. By doing so, we first verify the widely accepted argument that online external attention (from both online media and retail investors) directly governs REM, supplementing where regulations fail. Additionally, we provide evidence of REM contagion among interlocking directors, indicating the influence of social learning on REM via social relationships. More importantly, we verify the existence of vicarious monitoring effect that the governance of online external attention on REM also spreads via interlocking directors, and estimate its marginal magnitude per unit interlock and attention, thus providing regulators and stakeholders a new instrument to socially govern REM. Therefore, we contribute to the discussion on accounting quality and corporate governance from a social learning perspective.