Do Social Ties between Audit Committee Members and CEO Affect Earnings Management?
Date Issued
2015
Date
2015
Author(s)
Lu, Tai-Yun
Abstract
To make sure that the audit committee can provide sufficient oversight over financial reporting system, the regulators require that all the audit committee members should be independent. Although all the audit committee members appear to be independent, still they can be connected to CEO through their social networks. The purpose of this thesis is to explore whether the social ties between the audit committee members and CEO will affect the quality of financial reporting. Using hand-collected data from 2011-2013, I examine the relationship between social ties and abnormal accruals, proxy of earnings management. I didn’t find that these social ties will increase abnormal accruals. But when I further subdivide these social ties into education ties and employment ties, I find a significant positive relation between education ties and abnormal accrual, which suggests that the audit committee member who has education ties between CEO is more likely to trust CEO and thus may weaken their oversight over financial reporting system. When both education and employment ties exist between CEO and audit committee members, the results still hold.
Subjects
Audit Committee
Independence
Social ties
Earnings Management
Financial Reporting Quality
Type
thesis
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