The Impact of Board Internationalization on Real Earnings Management: Evidence From China

Journal article


Ashraf, B. and Qian, N. (2021). The Impact of Board Internationalization on Real Earnings Management: Evidence From China. SAGE Open. https://doi.org/10.1177/21582440211032640
AuthorsAshraf, B. and Qian, N.
Abstract

In this article, we examine the impact of board internationalization on real earnings management. Using the annual data of 2,899 Chinese listed non-financial firms with 16,638 firm-year observations over the period from 2008 to 2017 for empirical analysis, we find robust evidence that higher proportion of foreign directors on corporate boards reduces real earnings management. Results support the hypothesis that foreign directors increase boards’ effectiveness in monitoring the management and, consequently, lead to less earnings management by corporate executives. Our results are robust to alternative measures of board internationalization, instrumental variable analysis, and adding additional control variables. We further observe that foreign directors are more effective in reducing earnings management in firms with local directors with foreign experience and in Chinese provinces with developed institutional environment. Moreover, Chinese firms complement accrual and real activities–based earnings management, and board internationalization is effective in reducing both types of earnings management. Overall, our findings imply board internationalization improves the quality of reported earnings to outside shareholders.

Year2021
JournalSAGE Open
PublisherSage
ISSN2158-2440
Digital Object Identifier (DOI)https://doi.org/10.1177/21582440211032640
Web address (URL)https://doi.org/10.1177/21582440211032640
Publication dates
Online01 Jul 2021
Publication process dates
Deposited02 Nov 2022
Publisher's version
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File Access Level
Open
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