Relationships Between Director Profile And Restatements Of Suspect Earnings

Abstract

The large number of recent earnings restatements suggests that boards have not been discharging their fiduciary duties very well. This paper examines which director traits, if any, are correlated with the need to restate suspect earnings. We find that the only significant aspect of director profile is director independence: boards with a larger percentage of outside directors are less likely to have restated suspect earnings that boards with a lesser percentage. The paper concludes with some thoughts on why current research practice of focusing on formal corporate governance (board composition, board traits, etc.) needs to be supplemented with research into power dynamics.