Open AccessThe relationship between director independence, reputation and management earnings forecasts
Author(s) -
H. Leon Chan,
Robert W. Faff,
Paul R. Mather,
Alan Leigh Ramsay
Publication year - 2008
Publication title -
corporate ownership and control
Language(s) - English
Resource type - Journals
eISSN - 1810-0368
pISSN - 1727-9232
DOI - 10.22495/cocv6i2c3p7
Subject(s) - corporate governance , reputation , accounting , independence (probability theory) , earnings , audit committee , proxy (statistics) , discretion , business , earnings management , audit , capital market , economics , finance , political science , statistics , law , mathematics
Informative management earnings forecasts potentially reduce information asymmetries in capital markets. We examine the relationship between corporate governance and management earnings forecasts. We extend the prior literature by examining the impact of independent director reputation on characteristics of management forecasts, by refining the previously used proxy for director independence and by distinguishing between routine and non-routine forecasts in the Australian governance environment. We find a significant positive relationship between the likelihood and frequency of firms issuing management earnings forecasts and our measures of audit committee independence and independent director reputation but not board independence. However, there is some evidence that director independence is related to more specific forecasts. These results are driven by routine earnings forecasts over which, it is argued, management have greater discretion.