The Effects of Board and Audit Committee Characteristics on Real Earnings Management: Do Boards and Audit Committees Play a Role in its Constraint

This study, using a unique, hand-collected dataset of board and audit committee characteristics from the post-SOX period, examines the effects of corporate governance structures on real earnings management (REM). Results from logistic regression analysis of 148 REM and 148 non-REM firms indicate there is some support for the expectation that audit committee and board characteristics are associated with the probability of REM activity. Specifically, I find that the number of audit committee meetings and independent board members’ stockholdings are negatively associated with REM. Additionally, the number of outside directorships held by audit committee members, the number of outside directorships held by independent board members, and nonindependent board members’ stockholdings demonstrate a positive association with REM. The results offer some potentially valuable information to policymakers seeking to enhance the effectiveness of corporate governance mechanisms, as well as highlight the need for additional governance reform