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

See all articles by César Zarza-Herranz

César Zarza-Herranz

University of Valladolid

Nuria Reguera

University of Seville

Félix J. López-Iturriaga

Universidad de Valladolid - Department of Finance and Accounting; National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy

Date Written: June 17, 2020

Abstract

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

Zarza-Herranz, César and Reguera, Nuria and Lopez-Iturriaga, Felix Javier, Audit Committee Competence and Earnings Management in Europe (June 17, 2020). Fortchoming in Revista de Contabilidad-Spanish Accounting Review, Available at SSRN: https://ssrn.com/abstract=3629048 or http://dx.doi.org/10.2139/ssrn.3629048

César Zarza-Herranz

University of Valladolid ( email )

8 C/Plaza de Santa Cruz
Valladolid, Valladolid 47002
Spain

Nuria Reguera

University of Seville ( email )

Avda. del Cid s/n
Sevilla, Sevilla 41004
Spain

Felix Javier Lopez-Iturriaga (Contact Author)

Universidad de Valladolid - Department of Finance and Accounting ( email )

Avda. Valle Esgueva 6
47011 Valladolid
Spain
+34 983 184 395 (Phone)
+34 983 183830 (Fax)

National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy ( email )

Lebedeva,27
Perm, Perm 614070
Russia

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