Earnings Quality and Shareholders Satisfaction with the Management and Supervisory Board

• In Event: Earnings & Leases

Abstract

This study examines whether earnings quality is related to shareholders´ satisfaction with the members of the company´s board. By examining the vote on the discharge of the management and supervisory board in the German setting – as a proxy for shareholders´ satisfaction –, this study responds to the call of Cai et al. (2010) for international research on shareholder voting. Moreover, the paper throws light on the question whether shareholders´ satisfaction with the company´s representatives is affected by the quality of earnings. Using data from 1,059 annual general meetings of German companies from 2010 to 2015, this study provides evidence that earnings quality – which is measured by the magnitude of discretionary accruals – is associated with shareholders´ satisfaction with the board. Furthermore, the study makes use of the German setting which allows differentiating between shareholders´ satisfaction with management and supervisory board. The fact that the findings regarding the discharge of the supervisory board are less substantial in magnitude and significance relative to the management board could imply that shareholders predominantly blame the management board for inferior earnings quality caused by discretionary accruals.

Author

• Sven Hoerner, Julius-Maximilians-Universität Würzburg