The effect of co-opted directors on real earnings management

Robin Chen, Hongrui Feng, Xuechen Gao, Shenru Li

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

Co-opted directors are those elected after a CEO takes office. In this paper, we examine how co-opted directors affect real earnings management. Our results show that, due to the lack of director independence, a board with more co-opted directors plays a weaker monitoring role, which significantly increases the level of real earnings management. A DID setting using the Sarbanes–Oxley Act of 2002 as a natural experiment demonstrates that there is most likely a causal effect of board co-option on real earnings management. Furthermore, we find that this causal effect is more pronounced in firms with poor corporate governance.

Original languageEnglish (US)
Pages (from-to)1315-1339
Number of pages25
JournalReview of Quantitative Finance and Accounting
Volume61
Issue number4
DOIs
StatePublished - Nov 2023

All Science Journal Classification (ASJC) codes

  • Accounting
  • General Business, Management and Accounting
  • Finance

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