The influence of director stock ownership and board discussion transparency on financial reporting quality |
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Authors: | Jacob M Rose Cheri R Mazza Carolyn S Norman Anna M Rose |
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Institution: | 1. Victoria University of Wellington, School of Accounting and Commercial Law, PO Box 600, Wellington 6140, New Zealand;2. John F. Welch School of Business, Sacred Heart University, Fairfield, CT 06825, United States;3. Virginia Commonwealth University, Department of Accounting, School of Business, 301 W. Main Street, Richmond, VA 23284-4000, United States |
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Abstract: | Seventy-two active corporate directors participate in an experiment where management insists on aggressive recognition of revenue, but the chief audit executive proposes a more conservative approach. Results indicate interactive effects of director stock ownership and the transparency of director decisions. Stock-owning directors are more likely to oppose management’s attempts to manage earnings when transparency increases. For non-stock owning directors, however, increasing transparency does not affect the likelihood that directors oppose management’s attempts to manage earnings. The current study challenges suppositions that equate director stock ownership with improved financial reporting and higher corporate governance quality, and it provides evidence that increased transparency is beneficial when director compensation plans threaten director independence. |
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