Does investor protection regime affect the effectiveness of outside directorship on the board?

► Higher outside directorship is associated with lower earnings management. ► There is no difference in the effectiveness of outside directorship across countries. ► Our findings support the global harmonization of corporate governance. Since the Sarbanes-Oxley Act was enacted in U.S., there has bee...

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Bibliographic Details
Published in:Journal of multinational financial management 2013-04, Vol.23 (1-2), p.19-33
Main Authors: Pathak, Jagdish, Sun, Jerry
Format: Article
Language:English
Subjects:
Corporate governance
Internationalization
Investor protection
Outside directorship
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Summary:► Higher outside directorship is associated with lower earnings management. ► There is no difference in the effectiveness of outside directorship across countries. ► Our findings support the global harmonization of corporate governance. Since the Sarbanes-Oxley Act was enacted in U.S., there has been a general tendency to globally harmonize regulations and practices of board governance. The purpose of this study is to compare among countries how well the board of directors constrains earnings management. Using a sample of firms from 23 countries, we document some evidence that higher outside directorship on the board is associated with lower earnings management in the international context. We also find that there is no significant difference in the effectiveness of board outside directorship in constraining earnings management between high and low investor protection countries. Our findings mitigate a concern that harmonized corporate governance in low investor protection countries may not work.
ISSN:1042-444X
1873-1309
DOI:10.1016/j.mulfin.2012.10.004