Asad, M., Akbar, S. and Mollah, S. orcid.org/0000-0002-6342-8309 (2024) The role of independent directors’ tenure and network in controlling real-earnings management practices. Review of Quantitative Finance and Accounting, 63 (4). pp. 1251-1279. ISSN 0924-865X
Abstract
Manipulating real activities is generally regarded as more damaging to a firm’s long-term growth and value than accrual-based manipulations. We consider this point of view and build on the agency theory framework for investigating the role of independent directors’ (INDs’) tenure and connection to several boards in controlling real-earnings management (REM) practices. We analyze a sample of UK listed non-financial companies over the period between 2005 and 2018. The potential endogeneity issue was controlled by the application of the two-step system-GMM estimations. The research findings suggest that REM was lower in those firms whose INDs were connected to several boards at a time. The findings also show that the association between INDs’ tenure and REM varied with the phases of their tenure. Directors in the early stage of their tenure are less effective at controlling REM, however, as their tenure grew, they generate better oversight over the management conduct, thereby reducing REM. Contrary to this, extended tenure is shown as positively associated with higher REM practices. The overall findings thus suggest that the board monitoring role protects the stakes of the shareholders by constraining REM when INDs have better expertise and rich information acquired through their presence on multiple boards—and when they have moderate board tenure, which is neither too short nor too long. We argue that due to the importance of the role of INDs in the current global scenario this study has policy implications.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2024 The author(s). This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/. |
Keywords: | Independent directors; Tenure; Multiple-board sittings; Phases in tenure; Real-earnings management |
Dates: |
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Institution: | The University of Sheffield |
Academic Units: | The University of Sheffield > Faculty of Social Sciences (Sheffield) > Management School (Sheffield) |
Depositing User: | Symplectic Sheffield |
Date Deposited: | 28 Oct 2024 14:07 |
Last Modified: | 28 Oct 2024 14:07 |
Status: | Published |
Publisher: | Springer Science and Business Media LLC |
Refereed: | Yes |
Identification Number: | 10.1007/s11156-024-01288-y |
Related URLs: | |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:218951 |