Co-opted boards and earnings management: Evidence of reduced short-termist behavior

• Oneil Harris ^[1] ; Asligul Erkan ^[1]
  1. [1] East Carolina University

     East Carolina University

     Township of Greenville, Estados Unidos

     
• Localización: Business Research Quarterly, ISSN 2340-9444, ISSN-e 2340-9436, Vol. 26, Nº. 3, 2023, págs. 256-280
• Idioma: inglés
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• Resumen

  • This study contributes to the emerging literature on board co-option by examining how and to what extent co-opted directors influence managers’ attitudes about earnings management. We find robust evidence that co-option mitigates both real activities and accrual-based earnings management. Our findings support the view that higher co-option reduces managerial short-termism because it enhances managers’ job security as co-opted directors are known to be less likely to remove managers from office. Our results are robust to different measures of both co-option and earnings management, and they continue to hold after accounting for endogeneity and selection concerns. Finally, we provide additional evidence showing that a higher degree of co-option lowers the likelihood of the chief executive officer (CEO) being forcefully removed from the office for managing earnings in the previous year.