The Fear of the Queen: Director Reputation and Earnings Quality

Speaker: Dr Tolulola Lawa, Lecturer in Accounting , SOAS University of London
Chair: Victor Murinde, AXA Professor in Global Finance, SOAS University of London
Time: Wednesday, 20th March 2019, 13:00-15:00
Venue: S314, SOAS University of London (Paul Webley Wing)

Abstract

The study contributes to the literature on the consequences of board composition and the determinants of earnings quality by investigating the effect of director reputation on the quality of earnings of a sample of UK listed non financial firms for the period 2004 – 2014. We conjecture that the possession of one or more awards within the British Honours System is an ex-post confirmation of the reputational capital of directors. Our unique measure of director reputation draws from a comprehensive review of more than 4000 director profiles from public sources including corporate annual reports, Who’s Who (Who was Who) and UK government gazettes. Our individual director reputation scores are schematically combined to construct a firm-year index of corporate reputation. We measure earnings quality as the discretionary accruals from the Jones model (Jones, 1991) and the errors from accruals estimation models (McNichols, 2002; Dechow and Dichev, 2002). We argue that reputable directors have more market-based incentives to constrain the tendency of their firms to engage in earnings management. Therefore, we hypothesise a positive relationship between corporate reputation and earnings quality. We propose a test of this hypothesis at both the firm and auditor committee levels.

JEL classification: G30, G34, M41

Keywords: Director Reputation; Corporate Reputation; Earnings Quality; Earnings Management; Abnormal Accruals

A sandwich lunch will be served.

The seminars are sponsored by grants from DFID and ESRC [ESRC Ref: ES/N013344/2], ESRC and NSFC [ESRC Ref: ES/P005241/1] and AXA Research Fund