Do Directors Have a Style? Board Interlocks and Properties of Accounting Earnings

• In Event: More Financial Reporting

Abstract

We test whether board interlocks between two firms increase similarities in the firm-pair’s accounting practices. In particular, we examine whether differences in accounting conservatism and timeliness are smaller when two firms share one or more board members. We measure firm-level accounting conservatism (reporting timeliness) using C_Score (G_Score) (Khan and Watts, 2009). We find that board interlock reduces the difference in reporting timeliness as well as conservatism between interlocked firms. A further examination reveals that when two firms are linked through key directors (i.e., CEO, CFO, the board Chair, Audit Committee Member and Audit Committee Chair), differences in both conservatism and timeliness are smaller compared to the rest of interlocked firms that are not linked by key directors. Our study sheds light on the role of the board in shaping accounting numbers, and also adds to the evidence that network among companies affects accounting practices in general.

Authors

• Jiayan Li, University of Massachusetts Lowell

• Jingrong Lin, University of Massachusetts-Lowell

• Khondkar E Karim, University of Massachusetts-Lowell