The Relational Corporate Governance Approach
Chapter 9: Empirical studies Key Field No 4 (Part 3): Board and audit committee factors and earnings manipulation
This chapter presents Part 3 of the detailed review of law, economic and econometric studies from the US, UK, Europe and Australia that comprises the Empirical Studies Key Field No 4. In this chapter, another measure of, or proxy for, ‘good’ governance is examined – the probability of earnings manipulation or ‘management’. Increases in earnings management represent increases in agency costs of outside shareholders and therefore a fall in firm sustainability. Again drawing upon these empirical studies and the Shareholder Primacy Interrelationship Scheme presented in Figure 2.6, this chapter presents a ‘relational effect path’ for a range of individual board and audit committee governance variables. This relational effect path describes the number and identity of the governance factors affected by a governance variable and the direction of effect. The nature and operation of many of these variables was encountered in Chapters 7 and 8. But, in this chapter, the relational approach examines the effect of these variables on the earnings management measure.
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