The desire of prestigious audit committee chairs: what are the benefits for financial reporting quality?

Abstract

Purpose This study aims to examine how the prestige of audit committee (AC) chairpersons influences earnings management. Design/methodology/approach The sample contains 1,973 firm-year observations of French listed firms for the period 2007–2018. The authors examine the status of AC chairs and CEOs by focusing on the French business elite system. This study tests the association between AC chairs’ (relative) status and the level of earnings management using measures of accrual earnings management and real earnings management (REM). Findings The results of this study do not show that high-status AC chairs constrain accruals manipulation. However, the results provide evidence that they play a key role in constraining REM. High-status AC chairs are more likely to enhance the monitoring of this type of manipulation, given their thorough knowledge and understanding of the firm’s business environment and practices. This study also finds evidence that AC chairs with a status higher than CEOs are associated with lower levels of REM. The results suggest that prestigious AC chairs influence lower status CEOs’ strategic decisions. Originality/value This study demonstrates that high-status AC chairs play an important role in detecting and constraining deviations from normal business practices. The results have substantial implications for boards, which will benefit from an understanding of how the appointment of high-status chairs affects financial reporting quality.

High-speed rail network and earnings management techniques usage trade-off: the moderating effects of governance and religion

“…Subsequent research by Doukakis (2014) further reaffirms that managers compare the related costs of AM and RM when choosing between these two earnings management techniques. Managers will usually choose RM when the cost of AM is higher, and vice versa (Zang, 2012; Broye and Johannes, 2023).…”

Financial Statement Fraud: Pengujian Fraud Hexagon Dengan Moderasi Audit Committee

“…Salah satu tata kelola perusahaan yang paling berperan dalam mengurangi financial statement fraud adalah komite audit. Komite audit berperan dalam memonitor manajer dan menjaga kualitas laporan keuangan (Broye and Johannes 2023). Karena komite audit berperan dalam kegiatan internal perusahaan, komite audit dapat mendeteksi terjadinya fraud, yang bahkan tidak dapat dideteksi oleh auditor independen (Free, Trotman, and Trotman 2021;Ghafran, O'Sullivan, and Yasmin 2022).…”

Audit Committees’ Power and Financial Expertise on Earnings Management during COVID-19

“…Previous literatures exert various results. Broye and Johannes [6] find negative effect of audit committee's power on earnings management. According to the study conducted by Dewi and Mita [7] and Siagian and Siregar [8], it was found that audit committee's power does not exert any influence on earnings management.…”

“…The influence exerted by the audit committee is contingent upon its knowledge and quality as an auditor [7]. In the context of auditing, it has been argued by that prestige serves as an indicator of an auditor's ability and credibility [6]. The position of the audit committee can have an impact on the financial outcomes of a corporation, particularly in operations that involve a high degree of uncertainty.…”