Do independent director’s characteristics influence financial reporting quality?

Abstract

ABSTRACTThis paper analyses whether the role played by independent directors in monitoring the financial reporting process is affected by certain personal characteristics. Specifically, we focus on the tenure and the number of directorships that independent directors hold. Our sample is composed of US listed firms for the period 2008–2012. After performing several robustness checks and sensitivity analyses, we have documented a positive association between board independence and financial reporting quality. However, this association is presented only for certain values of directors’ tenure and external directorships. This evidence suggests that the effectiveness of independent directors in their monitoring tasks is affected by these personal characteristics. In particular, our results indicate that long tenures and a high number of directorships compromise the ability to monitor. Therefore, this paper highlights the need for a more specific approach, based on the personal characteristics of independent directors, in order to study their influence on corporate decisions. Furthermore, our evidence has direct implications for companies in the selection of board members.