The impact of board characteristics on classification shifting: evidence from Germany

Muhammad Usman, Rami Salem and Ernest Ezeani

International Journal of Accounting & Information Management, 2022, vol. 30, issue 5, 565-582

Abstract: Purpose - This paper aims to examine the relationship between board characteristics (BCs) on classification shifting (CS) among listed non-financial German firms. Design/methodology/approach - Using 870 firm-year observations of German non-financial firms from 2010 to 2019 listed on DAX, MDAX and SDAX index, this paper examines the relationship between BCs (board size [BS], board meetings [BM], board independence [BI] and board gender diversity [BGD]) and CS. Findings - This study found that managers of German firms use CS and move recurring expenses to non-recurring expenses to inflate their core earnings. Also, this study found that BCs including BS, BI and BGD have a mitigating effect on CS practices of German non-financial firms. However, the number of BMs does not influence earnings management. Practical implications - This paper recommends that German firms’ board must be constituted with more independent members and female representation because these board mechanisms help to curb CS. Originality/value - The focus of this study is Germany, which is a bank-oriented economy with low transparency and investor protection. This paper provides new evidence on how BCs impact CS among German firms, whereas previous CS studies focused mainly on market-oriented economies like the USA and the UK.

Keywords: Corporate governance; Earnings management; Board characteristics; Classification shifting (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijaimp:ijaim-04-2022-0085

DOI: 10.1108/IJAIM-04-2022-0085

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