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When does audit committee busyness influence earnings management in the UK? Evidence on the role of the financial crisis and company size

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journal contribution
posted on 13.05.2022, 16:22 authored by Chaudhry Ghafran, Noel O'SullivanNoel O'Sullivan, Sofia Yasmin

We investigate the impact of audit committee busyness on earnings management in FTSE350 companies between 2007 and 2013, a period that includes the global financial crisis and its immediate aftermath. Using a range of busyness measures and examining the impact on both accruals and real earnings management, we find that the busyness of audit committee members has a negative impact on earnings quality, which suggests that members with more board seats are less effective monitors of managers’ desire to manipulate earnings. Our findings are more pronounced in FTSE250 than in FTSE100 firms. We also find that the detrimental impact of busy audit committees is more pronounced during the financial crisis and, in the case of real earnings management, is not observed afterwards. Our findings raise important questions for corporate governance regulators, who have not previously sought to address audit committee busyness and its potential impact on audit committee effectiveness. Our results also emphasize the need for researchers to appreciate the wider economic circumstances in which studies are undertaken, the lack of homogeneity between larger and smaller listed firms, and the importance of jurisdiction in governance-related studies.

History

School

  • Business and Economics

Department

  • Business

Published in

Journal of International Accounting, Auditing and Taxation

Volume

47

Publisher

Elsevier

Version

VoR (Version of Record)

Rights holder

© The Authors

Publisher statement

This is an Open Access Article. It is published by Elsevier under the Creative Commons Attribution 4.0 International Licence (CC BY 4.0). Full details of this licence are available at: https://creativecommons.org/licenses/by/4.0/

Acceptance date

29/04/2022

Publication date

2022-05-05

Copyright date

2022

ISSN

1061-9518

Language

en

Depositor

Prof Noel O'Sullivan. Deposit date: 19 October 2021

Article number

100467