DOES THE COMPETENCY ATTRIBUTES OF BOARD MEMBERS’ ENHANCE THE MONITORING OF EARNING MANAGEMENT? EVIDENCE FROM A DEVELOPING COUNTRY

Download This Article

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

Abstract

The monitoring role of the board of directors has been extensively slammed as being ineffective since it depends on several factors. This study sheds light on some of the directors’ attributes and the impact on mitigating the opportunistic behaviour. By adopting different perspectives, we argued whether the directors with more expertise, tenure, outside directorships become more effective in mitigating the opportunistic behaviour. These attributes could have a curvilinear effect since such optimal attributes could improve the competency level of the directors. Hence, the board becomes more effective. Meanwhile, its effect could turn inversely to make the directors ineffective. This study adopted discretionary accruals as an indicator for earnings management. A sample of 114 service and industrial firms listed in Amman Stock Exchange (ASE) from 2009-2015 were chosen for this study. Pooled OLS regression model is enlisted to avoid the inconsistently of the slope across individual units and time period. Results show that the directors with financial expertise are more effective to minimise the level of earnings management practices. Conversely, the independent directors with high tenure besides the higher directors with outside directorships are engaged with a high level of earnings management practices. This implies the existence of each of the friendliness hypothesis and the busyness hypothesis in the Jordanian market. Similarly, this also explains the weakness of the board of directors in complying to their monitoring role in the emerging markets in general.

Keywords: Discretionary Accruals (DAC), Director Expertise, Directors’ Tenure, Outside Directorships, Amman Stock Exchange (ASE)

Received: 22.12.2016

Accepted: 10.04.2017

How to cite this paper: Ghazalat, A. N. M., Islam, Md. A., Noor, I. B. M., & Abu Haija, A. A. (2017). Does the competency attributes of board members’ enhance the monitoring of earning management? Evidence from a developing country. Corporate Board: role, duties and composition, 13(1-1), 100-108. https://doi.org/10.22495/cbv13i1c1art4