BUS 17 Lecture Notes - Lecture 4: Statistical Power, Earnings Management, Inverse Relation

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2 Dec 2020
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Audit committee, board of director characteristics and earnings management (klein) Reductions in bard or audit committee independent are accompanied by large increases in abnormal accruals. The most pronounced effect occur when either the board or the audit committee is comprised of a minority of outside directors. Assumption of implicit positive connection between earnings management and non- independent audit committees. Support for the exchange and sec s assertions that for all large u. s. traded companies, independent audit committees and boards are better able to monitor the earnings process. Generous interpretation: a negative relation exists between audit committees or boards independence and earnings management for all large traded u. s. firms. Suggests that the exchange rules are reasonable, although 100% independent audit committees might not be necessary. Less liberal interpretation: firms with large accruals inherent in their earnings structure are less inclined to have independent boards or audit committees. Ceo involvement in the selection of new boards members (shivdasani & yermach)

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