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The Effect of Board Characteristics on Earnings Management in Differently-Sized European Firms: Earnings Management and Corporate Governance

The Effect of Board Characteristics on Earnings Management in Differently-Sized European Firms: Earnings Management and Corporate Governance
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Author(s): Ioannis G. Dokas (Democritus University of Thrace, Greece)
Copyright: 2022
Volume: 9
Issue: 1
Pages: 16
Source title: International Journal of Corporate Finance and Accounting (IJCFA)
Editor(s)-in-Chief: Apostolos G. Christopoulos (Department of Business Administration, University of the Aegean, Greece), Constantin Zopounidis (School of Production Engineering and Management, Technical University of Crete, Greece & Audencia Business School, France) and Kyriaki Kosmidou (Aristotle University of Thessaloniki, Greece)
DOI: 10.4018/IJCFA.301459

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Abstract

The effectiveness and the monitoring potentials of the board are crucial parameters for the management in the decision-making process. This study investigates the effect of board characteristics on the level of earnings management in EU listed firms. The findings indicate that the oversized boards function as a restricting determinant to the level of real and accrual-based manipulations. Also, the average board tenure is negatively correlated with real earnings management measures. An additional research query of this research is whether the effect of the board characteristics is diverse in different sized firms. In smaller firms, the board size impacts the accrual-based measures positively, while in the bigger firms, there is a positive association only with real earnings management measures. Furthermore, in smaller firms, an increase in board tenure seems to facilitate the manipulations using accounting policies and limit the manipulations of real activities. Finally, the results demonstrate that CEO-chairman duality is negatively related to the level of real earnings management.

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