The effect of board size and frequency of board meetings on earnings management

Abstract

This study investigates the effect of board size, frequency of board meetings on the earnings management when firm report the pattern of increasing-earnings for consecutive 3 years. The study result shows that the bigger board size can curb the earnings management behavior, and frequency of board meetings is positively related to earnings management. Board size and frequency of board meetings serve as the proxies of corporate governance. Modified Jones Model is employed to calculate the residuals that represent earnings management. The results hold after considering the effect of control variables, including return on assets, leverage ratio, free cash flow and firm size. Also, the study expects that board size and frequency of board meetings can serve as the first, simple and inexpensive tools to spot earnings management.