Board monitoring and earnings quality: An empirical study in Iran

Abstract

The current study examines the effect of board independence on earnings quality of the companies listed in the Tehran stock exchange (TSE). It makes use of the collected data from 165 companies quoted in the TSE during a period from 2005 to 2010. Regression and forward statistical method was applied to conduct the study. The findings indicate that earnings quality increases in the companies with higher proportion of non-executive directors. Also, the significance of the relationship between executive directors and earnings quality is lower than the relationship between non-executive directors and the reported earnings quality. Furthermore, in the companies where there is no duality-chairman, earnings quality decreases. The impact of firm size on the increase of earnings quality is confirmed, being positive and significant. The relationship between the leverage ratio and earnings quality is confirmed, being negative and significant though. Moreover, earnings quality is higher in privately owned companies compared with publicly owned companies. Key words: Earnings quality, nonexecutive board, executive board, board independence, duality-chairman.