Director Connectedness: Monitoring Efficacy and Career Prospects

We examine a specific channel through which director connectedness may improve monitoring: financial reporting quality. We find that the connectedness of independent, non-co-opted audit committee members has a positive effect on financial reporting quality and accounting conservatism. The effect is...

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Bibliographic Details
Published in:Journal of financial and quantitative analysis 2018-02, Vol.53 (1), p.65-108
Main Authors: Intintoli, Vincent J., Kahle, Kathleen M., Zhao, Wanli
Format: Article
Language:English
Subjects:
Access to information
Audits
Careers
Chief executive officers
Directors
Efficacy
Financial reporting
Prospects
Quantitative analysis
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Summary:We examine a specific channel through which director connectedness may improve monitoring: financial reporting quality. We find that the connectedness of independent, non-co-opted audit committee members has a positive effect on financial reporting quality and accounting conservatism. The effect is not significant for non-audit committee or co-opted audit committee members. Our results are robust to tests designed to mitigate self-selection. Consistent with connected directors being valuable, the market reacts more negatively to the deaths of highly connected directors than to the deaths of less connected directors. Better connected directors also have better career prospects, suggesting they have greater incentives to monitor.
ISSN:0022-1090
1756-6916
DOI:10.1017/S0022109018000017