Ethical Management, Corporate Governance, and Abnormal Accruals

Recent research has linked the reduction of abnormal accruals to corporate governance metrics. The results of these studies, however, are based on samples taken from periods prior to promulgated board independence requirements. In other words, during this time period, management not only had discret...

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Bibliographic Details
Authors: Huang, Pinghsun (Author) ; Louwers, Timothy J. (Author) ; Moffitt, Jacquelyn Sue (Author) ; Zhang, Yan (Author)
Format: Electronic Article
Language:English
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Published: Springer 2008
In: Journal of business ethics
Year: 2008, Volume: 83, Issue: 3, Pages: 469-487
Further subjects:B earnings smoothing
B accrual management
B Ethical Management
B Corporate governance
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Summary:Recent research has linked the reduction of abnormal accruals to corporate governance metrics. The results of these studies, however, are based on samples taken from periods prior to promulgated board independence requirements. In other words, during this time period, management not only had discretion over accounting accruals, but also significant influence over the choice of membership on the board of directors. This study suggests that ethical management practices may be a correlated omitted variable in these studies, thus resulting in causal inference problems in the previous research. We argue that, rather than the board of directors monitoring and reducing abnormal accruals as has been posited, management who was not engaging in abusive earnings management was attempting to signal the market regarding the quality of the firm’s financial information through its choice of board membership.
ISSN:1573-0697
Contains:Enthalten in: Journal of business ethics
Persistent identifiers:DOI: 10.1007/s10551-007-9632-9