Essay 1: Audit committee members’ attendance and its impact on earnings management. Essay 2: Exogenously reduced busyness and its impact on earnings management

Abstract

Essay 1: Audit committee members’ attendance and its impact on earnings management Prior accounting literature examines the impact of the characteristics of Audit Committee (AC), such as composition, diligence, the presence of experts and gender diversity on the earnings quality. Extant literature, however, does not examine the impact of attendance of AC members on the quality of reported earnings. While AC composition and diligence related characteristics provide some insights into the workings of an AC, the attendance record would provide additional insights into the actual workings and participation of individual members of an AC and its impact on earnings quality. This study examines the relationship between attendance records of independent directors, financial experts and earnings management. With a sample of 2468 Indian listed firm-year observations from 2013-2015 OLS regression is used to show that the attendance of independent AC members but not financial experts only, is negatively related to earnings management. This study uses a battery of robustness tests to confirm these results. Essay 2: Exogenously reduced busyness and its impact on earnings management To increase board diligence, SEBI reduced the number of independent directorships from ten to seven. Using this exogenous regulation change, this study examines two primary questions; first, do directors drop companies with relatively poor earnings quality and second, the impact of reduced busyness on earnings quality. While busy directors are pressed for time, they also have more exposure. This regulation change provides us an opportunity to examine exogenously initiated resignations and thereby reduced busyness of busy directors. Our sample includes all listed firms which employed directors impacted by this legislation for which data is available. OLS is used to examine the factors that lead to director cessation. To provide an unbiased estimate of the impact of reduced busyness, a difference-in-difference approach is adopted using propensity score matched firms. Our results suggest that reduced busyness reduces EM on smaller boards, and our results are robust to a battery of modifications.