Professionals inside the board room: accounting expertise of directors and dividend policy
Journal
Applied Economics
Journal Volume
50
Journal Issue
56
Pages
6100-6111
Date Issued
2018
Author(s)
Abstract
Directors’ personal attributes have significant impacts on governance effectiveness. We study whether directors’ accounting expertise affects corporate financial policy and investigate dividend in specific. We construct a dataset of audit committee directors’ accounting expertise for Standard & Poor 500 firms from 2005 to 2012. We first verify directors’ monitoring roles by showing that firms with accounting expert sitting on their audit committees demonstrate stronger accounting conservatism. In our main tests, we find that these firms maintain lower dividend payment level, which are less sensitive to earnings volatility. This suggests directors’ advisory roles in financial policy. We further show that our accounting expertise cannot be subsumed by management ability. In additional test, we further examine the baseline results conditional on analyst forecast error. Our findings highlight the importance of directors’ professional expertise in fulfilling their governance roles. © 2018, © 2018 Informa UK Limited, trading as Taylor & Francis Group.
Subjects
accounting expert; Audit committee; corporate governance; dividend policy
Other Subjects
data set; error analysis; financial policy; forecasting method; governance approach; twenty first century
Type
journal article