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Board Interlocks and Earnings Quality

Board Interlocks and Earnings Quality 2025

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The document explores the relationship between board interlocks and earnings quality, highlighting that firms with interlocked boards exhibit significant correlations in their accounting practices. It emphasizes that these correlations are particularly strong for audit committee interlocks, suggesting that information about accounting practices transfers between interlocked firms. The study finds evidence supporting the notion that poor accounting practices are more contagious than good ones, indicating a tendency for bad practices to spread more easily within interconnected firms. The authors recommend future research to consider both monitoring and social context factors in understanding financial accounting practices.

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What is the relationship between auditing and financial management?

Auditing serves as a vital function in supporting financial management and decision-making processes. It provides an independent and objective assessment of financial information, systems, and controls.

What is the relationship between earnings management and audit quality?

Findings: Research indicates that higher audit quality is associated with reduced earnings management practices. High-quality audits lead to improved financial reporting, fraud detection, and lower costs of capital. Market reactions are positive when reputable audit firms are involved.

What are the 5 types of earnings management?

There are five common strategies and techniques of earnings management. They include the Big Bath, Cookie Jar Reserves, Operating Activities, Materiality and Revenue Recognition methods.

How is earnings management related to quality of earnings?

Earnings management has a negative impact on the quality of earnings if it distorts the information in a way that is less useful for forecasting future cash flows.

What is the earnings quality model?

The Earnings Quality Model (EQ) is a percentile ranking of stocks based on the sustainability of earnings, with 100 representing the highest rank. StarMine defines earnings quality as a measure of the degree to which past earnings are reliable and are likely to persist.

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What is the difference between audit and quality of earnings?

Audits focus on a companys reported financial results, while QoEs focus on a companys adjusted/normalized financial results. In other words, audits typically focus on net income, while QoEs typically focus on EBITDA. Audits typically focus on annual results, while QoEs include an analysis of monthly results.

What is the difference between earnings quality and financial reporting quality?

For instance, while FRQ relates to the quality of the information in financial reports, including disclosures in notes, while earnings quality refers to the sustainability of reported earnings by the company in the future.

Board Interlocks and Earnings Quality 2025

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What is the relationship between auditing and financial management?

What is the relationship between earnings management and audit quality?

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What is the difference between audit and quality of earnings?

What is the difference between earnings quality and financial reporting quality?

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