Title: Board sub-committees and earnings quality

Authors: Nigar Sultana; Steven F. Cahan; Frank Zhang

Addresses: School of Accounting, Curtin Business School, Curtin University, Kent St., Bentley WA 6102, Western Australia ' School of Accounting and Finance, Faculty of Business and Economics, University of Auckland, 12 Grafton Rd., Auckland 1010, New Zealand ' School of Management and Governance, Murdoch University, 90 South Street, Murdoch, 6150, Western Australia

Abstract: The purpose of this study is to examine whether an overlap between compensation and audit committee memberships in firms affects earnings quality. We use a sample of 625 firm-year observations comprising data collected from Australian publicly listed firms between 2004 and 2010. Four measures of earnings quality are utilised to test our hypothesis. We find that firms with compensation and audit committee overlap exhibit higher earnings quality. Such sub-committee overlap is also more effective when overlapped members are independent and financial experts. Additional findings also indicate that female overlapped members are effective in reducing extreme earnings management. Findings have clear practical and regulatory implications in terms of the efficacy of sub-committee overlap.

Keywords: sub-committee overlap; earnings quality; audit committee; compensation committee.

DOI: 10.1504/IJCG.2017.089811

International Journal of Corporate Governance, 2017 Vol.8 No.3/4, pp.205 - 235

Accepted: 13 Jun 2017
Published online: 05 Feb 2018 *

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