Board independence and real earnings management: The case of R&D expenditure

Corporate Governance: An International Review

Volumn 16, Issue 2, 2008, Pages 116-131

  Osma, Beatriz Garcia ^a  

^a UNIVERSIDAD AUTÓNOMA DE MADRID   (Spain)

Author keywords

Agency theory; Board composition; Real earnings management

Indexed keywords

EID: 44449085848     PISSN: 09648410     EISSN: 14678683     Source Type: Journal    
DOI: 10.1111/j.1467-8683.2008.00672.x     Document Type: Article

References (63)

1. Aboody, D. Lev, B. (2000) Information asymmetry, R&D, and insider gains, The Journal of Finance, 55 : 2747 2766.
2. Adams, R. B. Ferreira, D. (2007) A theory of friendly boards, The Journal of Finance, 62 : 217 250.
3. Ahmed, A. S., Takeda, C. Thomas, S. (1999) Bank loan loss provisions: A re-examination of capital management, earnings management and signalling effects, Journal of Accounting and Economics, 28 : 1 25.
4. Allison, P. D. (2005) Fixed Effects Regression Methods for Longitudinal Data using SAS, SAS Institute Inc., Cary, NC.
5. Baber, W. R., Fairfield, P. M. Haggard, J. A. (1991) The effect of concern about reported income on discretionary spending decisions: The case of research and development, The Accounting Review, 66 : 818 829.
6. Bange, M. M. De Bondt, W. F. M. (1998) R&D budgets and corporate earnings targets, Journal of Corporate Finance, 4 : 153 184.
7. Barth, M. E., Elliott, J. A. Finn, M. W. (1999) Market rewards associated with patterns of increasing earnings, Journal of Accounting Research, 37 : 387 413.
8. Barth, M. E., Kasznik, R. McNichols, M. F. (2001) Analyst coverage and intangible assets, Journal of Accounting Research, 39 : 1 34.
9. Bartov, E. (1993) The timing of asset sales and earnings manipulation, The Accounting Review, 68 : 840 855.
10. Bartov, E., Givoly, D. Hayn, C. (2002) The rewards to meeting or beating earnings expectations, Journal of Accounting and Economics, 33 : 173 204.
11. Baysinger, B., Kosnik, R. Turk, T. (1991) Effects of board and ownership structure on corporate R&D strategy, Academy of Management Journal, 34 : 205 214.
12. Beekes, W., Pope, P. Young, S. (2004) The link between earnings timeliness, earnings conservatism and board composition: Evidence from the UK, Corporate Governance: An International Review, 12 : 47 59.
13. Berger, P. G. (1993) Explicit and implicit tax effects of the R&D tax credit, Journal of Accounting Research, 31 : 131 171.
14. Bhagat, S. Black, B. (1999) The uncertain relationship between board composition and firm performance, The Business Lawyer, 54 : 921 963.
15. Booth, J. R. Deli, D. N. (1996) Factors affecting the number of outside directorships held by CEOs, Journal of Financial Economics, 40 : 81 104.
16. Burgstahler, D. Dichev, I. (1997) Earnings management to avoid earnings decreases and losses, Journal of Accounting and Economics, 24 : 99 126.
17. Bushee, B. J. (1998) The influence of institutional investors on myopic R&D investment behavior, The Accounting Review, 73 : 305 333.
18. Byrd, J. W. Hickman, K. A. (1992) Do outside directors monitor managers? Evidence from tender offer bids, Journal of Financial Economics, 32 : 195 221.
19. Cheng, S. (2004) R&D expenditures and CEO compensation, The Accounting Review, 79 : 305 328.
20. Cui, H. Mak, Y. T. (2002) The relationship between managerial ownership and firm performance in high R&D firms, Journal of Corporate Finance, 8 : 313 336.
21. David, P., Hitt, M. A. Gimeno, J. (2001) The influence of activism by institutional investors on R&D, Academy of Management Journal, 44 : 144 157.
22. Dechow, P. M., Sloan, R. G. Sweeney, A. P. (1995) Detecting earnings management, The Accounting Review, 70 : 193 225.
23. Dechow, P. M., Sloan, R. G. Sweeney, A. P. (1996) Causes and consequences of earnings manipulation: An analysis of firms subject to enforcement actions by the SEC, Contemporary Accounting Research, 13 : 1 36.
24. Demirag, I. S. (1995a) Assessing short-term perceptions of group finance directors of UK companies, The British Accounting Review, 27 : 247 281.
25. Demirag, I. S. (1995b) An empirical study of research and development top managers' perceptions of short-term pressures from capital markets in the United Kingdom, European Journal of Finance, 1 : 180 202.
26. Demirag, I. S. (1998) Boards of Directors' short-term perceptions and evidence of managerial short-termism in the UK, European Journal of Finance, 4 : 195 211.
27. Duke, J. C. Hunt, H. G. (1990) An empirical examination of debt covenant restrictions and accounting-related debt proxies, Journal of Accounting and Economics, 12 : 45 63.
28. Durtschi, C. Easton, P. (2005) Earnings management? The shapes of the frequency distributions of earnings metrics are not evidence ipso facto, Journal of Accounting Research, 43 : 557 593.
29. Fama, E. F. Jensen, M. C. (1983) Separation of ownership and control, Journal of Law and Economics, 26 : 319 337.
30. Fama, E. F. MacBeth, J. D. (1973) Risk, return, and equilibrium: Empirical tests, Journal of Political Economy, 81 : 607 636.
31. Galan, J. I. Sanchez, M. J. (2006) Influence of industry R&D intensity on corporate product diversification: Interaction effect of free cash flow, Industrial and Corporate Change, 15 : 531 547.
32. Garcia Lara, J. M., Garcia Osma, B. Mora, A. (2005) The effect of earnings management on the asymmetric timeliness of earnings, Journal of Business Finance and Accounting, 34 : 691 726.
33. Garcia Osma, B. Gill-de-Albornoz Noguer, B. (2007) The effect of the board composition and its monitoring committees on earnings management: Evidence from Spain, Corporate Governance: An International Review, 15 : 1412 1427.
34. Garcia Osma, B. Young, S. (2008) R&D expenditure and earnings targets, European Accounting Review, forthcoming.
35. Gore, P. O., Pope, P. F. Singh, A. (2007) Earnings management and the distribution of earnings relative to targets: Evidence from the U.K., Accounting and Business Research, 37 : 123 150.
36. Graham, J. R., Harvey, C. R. Rajgopal, S. (2005) The economic implications of corporate financial reporting, Journal of Accounting and Economics, 40 : 3 73.
37. Grinyer, J., Russell, A. Collison, D. (1998) Evidence of managerial short-termism in the UK, British Journal of Management, 9 : 13 22.
38. Hall, B. H. Mairesse, J. (2006) Empirical studies of innovation in the knowledge-driven economy, Economics of Innovation and New Technology, 15 : 289 299.
39. Heckman, J. J. (1979) Sample selection bias as a specification error, Econometrica, 47 : 153 162.
40. Hill, C. Snell, S. (1988) External control, corporate strategy, and firm performance in research-intensive industries, Strategic Management Journal, 9 : 577 590.
41. Johnson, J. L., Daily, C. M. Ellstrand, A. E. (1996) Boards of directors: A review of the research agenda, Journal of Management, 22 : 409 438.
42. Kasznik, R. McNichols, M. F. (2002) Does meeting earnings expectations matter? Evidence from analyst forecast revisions and share prices, Journal of Accounting Research, 40 : 727 759.
43. Klein, A. (2002) Audit committee, board of directors characteristics, and earnings management, Journal of Accounting and Economics, 33 : 375 400.
44. Mace, M. L. (1971) Directors: Myth and Reality, Harvard Business School Press, Boston.
45. Mansfield, E., Rapaport, J., Romeo, A., Wagner, S. Beardsley, G. (1977) Social and private rates of return from industrial innovations, Quarterly Journal of Economics, 91 : 221 240.
46. Margolis, R. M. Kammen, D. M. (1999) Evidence of under-investment in energy R&D in the United States and the impact of federal policy, Energy Policy, 27 : 575 584.
47. Nelson, M., Elliot, J. Tarpley, R. (2002) Evidence from auditors about managers' and auditors' earnings management decisions, The Accounting Review, 77 : 175 202.
48. Oliver, G. R. Walker, R. G. (2006) Reporting on software development projects to senior managers and the board, Abacus, 42 : 43 65.
49. Opler, T., Pinkowitz, L., Stulz, R. Williamson, R. (1999) The determinants and implications of corporate cash holdings, Journal of Financial Economics, 52 : 3 46.
50. Oswald, D. R. Zarowin, P. (2005) Capitalization vs expending of R&D and earnings management, Working paper, London Business School.
51. Oswald, D. R. Zarowin, P. (2007) Capitalization of R&D and the informativeness of stock prices, European Accounting Review, 16 : 703 726.
52. Peasnell, K. V., Pope, P. F. Young, S. (2000) Accrual management to meet earnings targets: UK evidence pre- and post-Cadbury, The British Accounting Review, 32 : 415 445.
53. Peasnell, K. V., Pope, P. F. Young, S. (2005) Board monitoring and earnings management: Do outside directors influence abnormal accruals? Journal of Business Finance and Accounting, 32 : 1311 1346.
54. Rockness, H. O. Shields, M. D. (1988) An empirical analysis of the expenditure budget in research and development, Contemporary Accounting Research, 4 : 568 581.
55. Schipper, K. (1989) Commentary on earnings management, Accounting Horizons, 3 : 91 102.
56. Shleifer, A. Vishny, R. W. (1997) A survey of corporate governance, Journal of Finance, 52 : 737 783.
57. Sougiannis, T. (1994) The accounting based valuation of corporate R&D, The Accounting Review, 69 : 44 68.
58. Useem, M. Zelleke, A. (2006) Oversight and delegation in corporate governance: Deciding what the board should decide, Corporate Governance: An International Review, 14 : 2 12.
59. Weisbach, M. S. (1988) Outside directors and CEO turnover, Journal of Financial Economics, 20 : 431 460.
60. Whittington, G. (1993) Corporate governance and the regulation of financial reporting, Accounting and Business Research, 23 : 311 319.
61. Wiedman, C. I. (1996) The relevance of characteristics of the information environment in the selection of a proxy for the market's expectations for earnings: An extension of Brown, Richardson, and Schwager (1987), Journal of Accounting Research, 34 : 313 324.
62. Young, S. (1999) Systematic measurement error in the estimation of discretionary accruals: An evaluation of alternative modelling procedures, Journal of Business Finance and Accounting, 26 : 833 862.
63. Zimmerman, J. L. (2000) Accounting for Decision Making and Control, McGraw-Hill International Editions, Malaysia.