Independent audit committee characteristics and real earnings management
Purpose The purpose of this study is to investigate the effectiveness of independent audit committees in constraining real earnings management. This study examines the relationships between audit committee characteristics and real activities manipulation. Design/methodology/approach US firms with stronger incentives to undertake real earnings management are selected as a sample. Regressions are run for the empirical analyses. Findings It is found that audit committee members' additional directorships are positively associated with real earnings management measured by abnormal cash flows from operations, abnormal discretionary expenses and abnormal production costs, suggesting that audit committees with high additional directorships are less effective in constraining real earnings management. The findings are consistent with the notion that audit committee members' busyness impairs their monitoring effectiveness. Originality/value This study extends the extant research on audit committees' oversigh.