Independent directors and earnings management: The moderating effects of controlling shareholders and the divergence of cash-flow and control rights |
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Institution: | 1. School of Business, Jiangnan University, Wuxi, Jiangsu 214122, China;2. Odette School of Business, University of Windsor, Windsor, Ontario N9B 3P4, Canada;1. Miller College of Business, Ball State University, Muncie, IN 47306, United States;2. Collins College of Business, University of Tulsa, Tulsa, OK 74104, United States |
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Abstract: | The research results on the suppressing effect of independent directors on earnings management are not consistent in existing literature. In addition, it has been argued that using financial statements provided by top management to investigate top management's earnings management is not appropriate. Therefore, the purpose of this study is twofold. First, we used external auditors (including the auditors of Taiwan Stock Exchange Corporation and the auditors of two Big Four accounting firms – Deloitte & Touche and KPMG in Taiwan) as respondents in order to obtain less biased data. Second, we investigate the moderating effects of controlling shareholders and the divergence of cash-flow and control rights on the relationship between independent directors and earnings management. The results show that both the existence of controlling shareholders and the divergence of cash-flow and control rights have significant suppressing effects on the relationship between independent directors and earnings management. Theoretical and practical implications are also discussed. |
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Keywords: | Independent directors Earnings management Controlling shareholders Divergence of cash-flow and control rights External auditors |
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