Audit Committee Financial Expertise and Earnings Management: The Role of Status
Posted: 7 Oct 2013 Last revised: 29 Aug 2014
Date Written: July 8, 2014
Regulatory pressure to increase both audit committee financial expertise and board independence has resulted in lower status for audit committees relative to management. This status differential is relevant because expertise and relative status are important determinants of each party’s ability to influence outcomes, particularly when parties face conflicting goals. We find that audit committees with both financial expertise and high relative status are associated with lower levels of earnings management, as measured by accounting irregularities and abnormal accruals. These results speak to benefits and limitations of financial expertise, which have been the focus of considerable debate.
Keywords: audit committees, earnings management, status, financial expertise
JEL Classification: M41
Suggested Citation: Suggested Citation