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We survey the evidence on the relationship between board composition and firm performance. Boards of directors of American public companies that have a majority of independent directors behave differently, in a number of ways, than boards without such a majority. Some of these differences appear to increase firm value; others may decrease firm value. Overall, within the range of board compositions present today in large public companies, there is no convincing evidence that greater board independence correlates with greater firm profitability or faster growth. In particular, there is no empirical support for current proposals that firms should have "supermajority-independent boards " with only one or two inside directors. To the contrary, there is some evidence that firms with supermajority-independent boards are less profitable than other firms. This suggests that it may be useful for firms to have a moderate number of inside directors (say three to five on an average-sized eleven member board). We offer some possible explanations for these results, based on board dynamics, the informational advantages possessed by inside (and, often, affiliated) directors, and the value of interaction between different types of directors who bring different strengths to the board. published in

I review empirical research on the relation between capital markets and financial statements.The principal sources of demand for capital markets research in accounting are fundamental analysis and valuation, tests of market efficiency, and the role of accounting numbers in contracts and the political process.The capital markets research topics of current interest to researchers include tests of market efficiency with respect to accounting information, fundamental analysis, and value relevance of financial reporting.Evidence from research on these topics is likely to be helpful in capital market investment decisions, accounting standard setting, and corporate financial

We survey 401 financial executives, and conduct in-depth interviews with an additional 20, to determine the key factors that drive decisions related to reported earnings and voluntary disclosure. The majority of firms view earnings, especially EPS, as the key metric for outsiders, even more so than cash flows. Because of the severe market reaction to missing an earnings target, we find that firms are willing to sacrifice economic value in order to meet a short-run earnings target. The preference for smooth earnings is so strong that 78 % of the surveyed executives would give up economic value in exchange for smooth earnings. We find that 55 % of managers would avoid initiating a very positive NPV project if it meant falling short of the current quarter’s consensus earnings. Missing an earnings target or reporting volatile earnings is thought to reduce the predictability of earnings, which in turn reduces stock price because investors and analysts hate uncertainty. We also find that managers make voluntary disclosures to reduce information risk associated with their stock but try to avoid setting a disclosure precedent that will be difficult to maintain. In general, management’s views provide support for stock price motivations for earnings management and voluntary disclosure, but provide only modest evidence in support of other

This paper examines the effects of venture capital backing on the corporate governance of the firm following the IPO. I conduct three independent sets of tests examining effectively how governance and monitoring might differ for venture- and non-venture-backed firms. First, I find that venture-backed firms have lower earnings management, as measured by the level of their discretionary accounting accruals, than similar nonventure-backed firms. Second, venture-backed firms experience a significantly higher wealth effect upon the announcement of the adoption of a shareholder rights agreement (poison pill) than non-venture-backed

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Abstract. Prior research has documented a ‘‘kink’ ’ in the earnings distribution: too few firms report small losses, too many firms report small profits. We investigate whether boosting of discretionary accruals to report a small profit is a reasonable explanation for this ‘‘kink.’ ’ Overall, we are unable to confirm that boosting of discretionary accruals is the key driver of the kink. We caution the use of the ratio of small profit firms to small loss firms as a measure of earnings management. We investigate and discuss a number of alternative explanations for the kink.

Commission, and conferences at Georgia Tech and Vanderbilt University for helpful comments and suggestions. Gregg Bell and Bin Huangfu provided able research assistance. Agrawal acknowledges financial support from the Powell Chair in Finance. Corporate Governance and Accounting Scandals This paper empirically examines whether certain corporate governance mechanisms are related to the probability of a company restating its earnings. We examine a sample of 159 U.S. public companies that restated earnings and an industrysize matched sample of control firms. We have assembled a novel, hand-collected dataset measuring corporate governance characteristics of these 318 firms. We find that several key governance characteristics are unrelated to the probability of a company restating earnings. These include the independence of boards and audit committees, and the provision of non-audit services by outside auditors. We find that the probability of restatement is lower in companies whose boards or audit committees have an independent director with a background in accounting or finance. This relation is statistically significant, large in magnitude, and robust to alternative specifications. Our findings are

We study the relations among abnormal accounting accruals measures of earnings management, stock offers, post-offer stock returns, and related shareholder lawsuits. We find that accruals are abnormally high around stock offers, especially high for firms that are subsequently sued about their offers. These accruals tend to reverse after stock offers and are negatively related to post-offer stock returns. Reversals are more pronounced and stock returns are much lower for sued firms than for those that are not sued. In multivariate logistic regressions the incidence of lawsuits involving stock offers is significantly positively related to abnormal accruals around the offer and significantly negatively related to post-offer stock returns. Moreover, settlement amounts in the lawsuits are also significantly positively related to the abnormal accruals and significantly negatively related to post-offer stock returns. These results support the view that some firms opportunistically manipulate earnings upward before stock issues rendering themselves vulnerable to litigation.

ibrant public securities markets rely on complex systems of supporting institutions that promote the governance of publicly traded companies. Corporate governance structures serve: 1) to ensure that minority shareholders receive reliable