Do Director Networks Matter for Financial Reporting Quality? Evidence from Audit Committee Connectedness and Restatements

Thomas C. Omer (), Shelley@unl.edu () and Frances M. Tice ()
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Thomas C. Omer: School of Accountancy, University of Nebraska–Lincoln, Lincoln, Nebraska 68588
Shelley@unl.edu: School of Accountancy, University of Nebraska–Lincoln, Lincoln, Nebraska 68588
Frances M. Tice: Leeds School of Business, University of Colorado Boulder, Boulder, Colorado 80309

Management Science, 2020, vol. 66, issue 8, 3361-3388

Abstract: This study examines the effect of audit committee connectedness through director networks on financial reporting quality, specifically the misstatement of annual financial statements. Using network analysis, we examine multiple dimensions of connectedness and find that after controlling for operating performance and corporate governance characteristics, firms with well-connected audit committees are less likely to misstate annual financial statements. In addition, our study demonstrates that audit committee connectedness through director networks moderates the negative effect of board interlocks to misstating firms on financial reporting quality. We conduct several tests to address identification concerns and find similar results. Our findings suggest that firms with better-connected audit committees are less likely to adopt reporting practices that reduce financial reporting quality.

Keywords: social networks; boards of directors; audit committee; corporate governance; financial reporting quality; restatements (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:66:y:2020:i:8:p:3361-3388

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