Financial Regulators on Boards: Evidence From Earnings Information Quality
Journal
European Financial Management
Journal Volume
31
Journal Issue
3
Start Page
1072
End Page
1102
ISSN
1354-7798
1468-036X
Date Issued
2024-11-20
Author(s)
Abstract
We find that directors with a financial regulatory background are associated with lower earnings quality. The influence of financial regulatory directors (FRDs) is more substantial for firms with higher proprietary costs and FRDs with greater expertise and experience. FRD firms do not have a greater likelihood of financial misconduct or meeting or beating analysts' forecasts. The stock market reacts more positively to FRD appointments than to the appointments of other directors. Our findings suggest that FRDs certify firm discipline, with lower earnings quality reflecting strategic choices rather than opportunistic manipulation, highlighting the impact of postemployment restrictions in financial regulatory agencies.
Subjects
board of directors
certification effect
earnings information quality
financial regulators
proprietary costs
SDGs
Publisher
Wiley
Type
journal article