Audit Committee Competence and Earnings Management in Europe
Fortchoming in Revista de Contabilidad-Spanish Accounting Review
39 Pages Posted: 10 Jul 2020 Last revised: 29 Jul 2020
Date Written: June 17, 2020
This study analyses the association between the competence of audit committee members and earnings management in a sample of 142 non-financial firms from France, Germany, Italy, Spain, and the United Kingdom over the 2006–2013 period. We measure members’ competence through their dedication and expertise. We find that outside directorships have a dual effect, such that a balanced level of dedication to the audit committee (roughly two outside directorships) reduces earnings management. We examine four types of expertise: audit, non-audit accounting, non-accounting financial, and supervisory expertise. We find a negative relation between earnings management and the audit experience of committee members, and that the other types of expertise play no relevant role. We also find that the contribution of audit experts to curbing earnings management proves particularly important in smaller and less active committees, as well as in smaller and busier boards.
Keywords: accounting expertise, audit committee, auditing, corporate governance, earnings management, financial expertise
JEL Classification: M42, G34
Suggested Citation: Suggested Citation