The effect of increases in board independence on financial reporting quality

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Authors
Porter, Christine M.
Sherwood, Matthew
Advisors
Issue Date
2023-04-25
Type
Article
Keywords
Board independence , Board of directors , Board regulation , Corporate governance , Financial reporting quality
Research Projects
Organizational Units
Journal Issue
Citation
Porter, C. and Sherwood, M. (2023), "The effect of increases in board independence on financial reporting quality", Accounting Research Journal, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/ARJ-12-2021-0344
Abstract

Purpose: This paper aims to examine the relation between SEC regulations centered on board of director independence and financial reporting quality and investigates the different routes to board independence. Design/methodology/approach: The sample includes 1,248 firm observations whose board composition is compared between 2001 and 2008. Each firm is categorized based on how they increase board independence. The authors test the hypotheses using ordinary least squares regression models. Findings: Results show that firms choose between multiple routes when complying with the independence requirements, and how firms operationalize the SEC requirement impacts financial reporting quality. Specifically, firms that achieve increased board independence through increased board size are associated with higher financial reporting quality. However, there is no association between higher financial reporting quality and a subsequent increase in audit fees. Suggesting the reporting quality results from the board monitoring function and not from an increase in auditor effort. Originality/value: No evidence exists on how a firm's chosen route to increased board independence relates to financial reporting quality.

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Publisher
Emerald Publishing
Journal
Book Title
Series
Accounting Research Journal
2023
PubMed ID
DOI
ISSN
1030-9616
EISSN