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Role of Social Relations of Outside Directors with CEO in Earnings Management

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  • Muhammad Shaique

    (School of Accounting, Zhongnan University of Economics and Law, Wuhan 430073, China)

  • Fei Guo

    (School of Accounting, Zhongnan University of Economics and Law, Wuhan 430073, China)

  • Ruqia Shaikh

    (School of Accounting, Zhongnan University of Economics and Law, Wuhan 430073, China)

  • Shahbaz Khan

    (School of Finance, Zhongnan University of Economics and Law, Wuhan 430073, China)

  • Muhammad Usman

    (School of Finance, Zhongnan University of Economics and Law, Wuhan 430073, China)

Abstract

The purpose of this study is to examine the impact of social relations among the board members on earnings management in Pakistani listed companies. Specifically, we have analyzed the social networks between CEO and outside board members. The modified Jones model has been used in this study to measure earnings management and we have captured social relations through SOCIAL (Social networking index). Our results suggest that firms with more connected boards show a positive relationship between board independence and earnings management. Further, we have shown that firms with CEO duality exhibit a higher association between social connections of the board and earnings management than firms with non-duality. Social relations among the board members undermine monitoring ability of outside directors and the impact becomes more severe in the presence of CEO duality.

Suggested Citation

  • Muhammad Shaique & Fei Guo & Ruqia Shaikh & Shahbaz Khan & Muhammad Usman, 2017. "Role of Social Relations of Outside Directors with CEO in Earnings Management," IJFS, MDPI, vol. 5(4), pages 1-14, December.
    • Handle: RePEc:gam:jijfss:v:5:y:2017:i:4:p:34-:d:123235
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    References listed on IDEAS

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