Financial accounting information, organizational complexity and corporate governance systems

Abstract

We posit that limited transparency of firms’ operations to outside investors increases demands on governance systems to alleviate moral hazard problems. We investigate how ownership concentration, directors’ and executive’s incentives, and board structure vary with: (1) earnings timeliness, and (2) organizational complexity measured as geographic and/or product line diversification. We find that ownership concentration, directors’ and executives’ equity-based incentives, and outside directors’ reputations vary inversely with earnings timeliness, and that ownership concentration, and directors’ equity-based incentives increase ARTICLE IN PRESS Formerly titled ‘‘The Sensitivity of Corporate Governance Systems to The Timeliness of Accounting Earnings.’’ We thank an anonymous referee and Jerry Zimmerman (the editor) for challenging us to sharpen the theoretical foundations of the paper. We also appreciate comments from Ray Ball, Sudipta Basu, Bill Beaver, Judy Chevalier, Thomas Hemmer, Bob Kaplan, Randy Kroszner, Darius Palia, Canice Prendergast, Cathy Schrand, Ross Watts and seminar participants at CUNY-Baruch, UC-Berkeley, University of Chicago, Harvard Business School, University of Illinois-Chicago, London Business School, University of Minnesota, University of Rochester, University of TexasAustin, the 1999 Big Ten Faculty Consortium, 1999 Stanford Summer Camp, 1999 Burton Summer Workshop at Columbia, 2000 European Finance Association Annual Meetings and the 2000 AAA Annual Meetings. We thank Hewitt Associates for providing ProxyBase data, and the Graduate School of Business at the University of Chicago, Fuqua School of Business at Duke University, and Kenan-Flagler Business School, University of North Carolina-Chapel Hill for financial support. Finally, we appreciate the research assistance of Xia Chen, Darin Clay, Kathleen Fitzgerald and Rebecca Glenn. *Corresponding author. Tel.: +1-773-834-0966; fax: +1-773-834-3976. E-mail address: ellen.engel@gsb.uchicago.edu (E. Engel). 0165-4101/$ see front matter r 2003 Elsevier B.V. All rights reserved. doi:10.1016/j.jacceco.2003.09.005 with firm complexity. However, board size and the percentage of inside directors do not vary significantly with earnings timeliness or firm complexity. r 2003 Elsevier B.V. All rights reserved. JEL classification: G30; M41; J33

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@inproceedings{Bushman2004FinancialAI, title={Financial accounting information, organizational complexity and corporate governance systems}, author={Robert Bushman and Qi Chen and Ellen Engel and Abbie J. Smith}, year={2004} }