Role of Social Relations of Outside Directors with CEO in Earnings Management

Muhammad Shaique, Fei Guo, Ruqia Shaikh, Shahbaz Khan and Muhammad Usman
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Muhammad Shaique: School of Accounting, Zhongnan University of Economics and Law, Wuhan 430073, China
Fei Guo: School of Accounting, Zhongnan University of Economics and Law, Wuhan 430073, China
Ruqia Shaikh: School of Accounting, Zhongnan University of Economics and Law, Wuhan 430073, China
Shahbaz Khan: School of Finance, Zhongnan University of Economics and Law, Wuhan 430073, China
Muhammad Usman: School of Finance, Zhongnan University of Economics and Law, Wuhan 430073, China

IJFS, 2017, vol. 5, issue 4, 1-14

Abstract: The purpose of this study is to examine the impact of social relations among the board members on earnings management in Pakistani listed companies. Specifically, we have analyzed the social networks between CEO and outside board members. The modified Jones model has been used in this study to measure earnings management and we have captured social relations through SOCIAL (Social networking index). Our results suggest that firms with more connected boards show a positive relationship between board independence and earnings management. Further, we have shown that firms with CEO duality exhibit a higher association between social connections of the board and earnings management than firms with non-duality. Social relations among the board members undermine monitoring ability of outside directors and the impact becomes more severe in the presence of CEO duality.

Keywords: social relations; earnings management; CEO duality; outside directors (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2017
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