Worldwide board reforms and financial reporting quality

Abstract

This study assesses whether and how corporate board reforms affect firms’ financial reporting practices. Using a sample of 40 countries and employing a difference-in-differences design, we find that corporate board reforms reduce firms' real earnings manipulation and discretionary accruals. These results remain robust after addressing endogeneity concerns and conducting additional robustness tests. Further analyses show that the decrease in earnings management following board reforms is attributable to the mitigation of agency problems and information asymmetry. By shedding light on this mechanism, our paper contributes to the literature by demonstrating how board reforms can enhance firm value.