Influence of board interlocking on earnings management

Abstract

The participation of directors on more than one board is called "board interlocking". This phenomenon contributes to the spread of management and governance practices, through directors sharing their knowledge and experiences on other boards. Thus, directors could "carry" the earnings management practices present in one company into another in which they sit on the board. It is assumed that the greater directors' direct or indirect connections on boards, the greater the sharing of information, especially information that can be reflected in company earnings quality. In light of the above, the aim of this study is to verify the influence of board interlocking on earnings management in companies listed on the São Paulo Stock, Commodities, and Futures Exchange (BM&FBovespa). The study is characterized as descriptive, quantitative, and documentary, and uses a sample of companies listed on the BM&FBOVESPA between 2011 and 2013. For earnings management, the model from Kang and Sivaramakrishnan (1995) was used, while for interlocking, degree centrality measures were used for direct board member connections, and intermediation centrality for indirect connections. The results indicate that earnings management is influenced by the interlocking of board members. It is concluded that the greater the degree centrality, the greater positive earnings management is, and that variations in positive and negative accruals are influenced by board member intermediation. The results reinforce the idea that earnings management behavior can be transferred between companies by the directors that make up their boards.

Earnings Management and Corporate Governance Evidence from Jordanian Banks

“…In other hand, [22] found that shareholder-friendly corporate governance is related with higher systemic risk and stand-alone in the banking sector. [23] found that the greater the degree of centrality, the greater the EM, and that variation in negative and positive accruals is influenced by board intermediation. The core objective of [24] was to examine whether the BOD and other key committees influence earnings management through discretionary accruals.…”

Gerenciamento de resultados por mudança de classificação e governança corporativa no Brasil

“…In addition, the literature is not conclusive about the relationship between earnings management and corporate governance (Cunha & Piccoli, 2017;Erfurth & Bezerra, 2013;Lin & Hwang, 2010;Susanto & Pradipta, 2016;Zalata & Roberts, 2015). Largely due to the various metrics used.…”

“…Lin and Hwang (2010) emphasize that corporate governance is a factor that is able to minimize the practice of earnings management, although there are some inconsistencies about this relationship (García-Meca & Sánchez-Ballesta, 2009). The relationship between earnings management and corporate governance occurs because corporate governance represents a set of mechanisms that contribute to the monitoring the managers (Cunha & Piccoli, 2017), limiting them and/or punishing them in certain accounting practices.…”

“…The literature has shown that corporate governance can improve investors' perception of firm performance (Almeida-Santos et al, 2011) and that the best practices of corporate governance can Earnings management by classification shifting and corporate governance in brazil ____________________________________________________________________________________ 132 Revista BASEv.17, n.1, janeiro/março 2020 contribute to reliable financial statements, enhancing the share value (Erfurth & Bezerra, 2013). In this context, studies have shown that efficient corporate governance mechanisms are able to reduce the practice of earnings management (Cunha & Piccoli, 2017, Haw et al, 2011, Lin & Hwang, 2010, Zalata & Roberts, 2015.…”

O impacto das diferenças culturais na governança corporativa: uma análise do nível país e regional

“…O valor dos accruals discricionários obtidos e sua análise tende a variar de acordo com o autor e o tipo de análise que este busca, assim, alguns estudos adotam o valor absoluto da variável de modo a avaliar a amplitude geral do gerenciamento de resultados (Martinez, 2010;Bao & Lewellyn, 2017;Joia & Nakao, 2014). Outros autores (Cunha & Piccoli, 2017;Martinez, 2008;Park & Shin, 2004) analisam a direção para a qual os resultados são gerenciados, avaliando o sinal obtido pela variável AD, assim, distinguem-se os accruals discricionários (AD) em AD Absolutos, AD Positivos (income increasing) e AD Negativos (income decreasing) (Silva, 2017).…”