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Independent audit committee characteristics and real earnings management

Author

Listed:
  • Jerry Sun
  • George Lan
  • Guoping Liu

Abstract

Purpose - – The purpose of this study is to investigate the effectiveness of independent audit committees in constraining real earnings management. This study examines the relationships between audit committee characteristics and real activities manipulation. Design/methodology/approach - – US firms with stronger incentives to undertake real earnings management are selected as a sample. Regressions are run for the empirical analyses. Findings - – It is found that audit committee members' additional directorships are positively associated with real earnings management measured by abnormal cash flows from operations, abnormal discretionary expenses and abnormal production costs, suggesting that audit committees with high additional directorships are less effective in constraining real earnings management. The findings are consistent with the notion that audit committee members' busyness impairs their monitoring effectiveness. Originality/value - – This study extends the extant research on audit committees' oversight of real earnings management by using refined research design and updated data. This study also provides further evidence on how audit committee members' additional directorships affect their ability to oversee both accrual and real earnings management.

Suggested Citation

  • Jerry Sun & George Lan & Guoping Liu, 2014. "Independent audit committee characteristics and real earnings management," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 29(2), pages 153-172, February.
    • Handle: RePEc:eme:majpps:maj-05-2013-0865
    DOI: 10.1108/MAJ-05-2013-0865
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    Citations

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    Cited by:

    1. Alhababsah, Salem & Alhaj-Ismail, Alaa, 2023. "Does shared tenure between audit committee chair and engagement partner affect audit outcomes? Evidence from the UK," The British Accounting Review, Elsevier, vol. 55(2).
    2. Masoud Azizkhani & Sarowar Hossain & Mai Nguyen, 2023. "Effects of audit committee chair characteristics on auditor choice, audit fee and audit quality," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 3675-3707, September.
    3. XiaoJiao Li & Ei Thuzar Than & Rizwan Ahmed & Maria Ishaque & Toan Luu Duc Huynh, 2023. "Gender diversity of boards and executives on real earnings management in the bull or bear period: Empirical evidence from China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2753-2771, July.

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