Strangers on the board : The impact of board internationalization on earnings management of Nordic firms
(2019) In International Business Review 28(1). p.119-134- Abstract
The internationalization of firms has led to boards becoming more international as well. In this study, we investigate the consequences of board internationalization. In particular, by drawing on research on language and board dynamics, we identify theory-based reasons why board internationalization could increase, or decrease, earnings management practices. We use agency theory, stressing how board internationalization may positively or negatively affect monitoring quality of boards. Next to agency theory, we use theories explaining how language differences in the boardroom complicates communication and how differences in language structures (referred to as linguistic relativity in the literature) affect directors’ perception and... (More)
The internationalization of firms has led to boards becoming more international as well. In this study, we investigate the consequences of board internationalization. In particular, by drawing on research on language and board dynamics, we identify theory-based reasons why board internationalization could increase, or decrease, earnings management practices. We use agency theory, stressing how board internationalization may positively or negatively affect monitoring quality of boards. Next to agency theory, we use theories explaining how language differences in the boardroom complicates communication and how differences in language structures (referred to as linguistic relativity in the literature) affect directors’ perception and detection of earnings management practices. Using a sample of 3249 firm-year observations representing 586 non-financial listed Nordic firms during 2001–2008, we find that the presence of non-Nordic foreign directors on the board is associated with significantly higher levels of earnings management. Our analysis indicates that this effect is driven by language-related factors, as well as by the level of foreign board members’ accounting knowledge.
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- author
- Hooghiemstra, Reggy ; Hermes, Niels ; Oxelheim, Lars LU and Randøy, Trond
- organization
- publishing date
- 2019-02-01
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- Agency theory, Board diversity, Earnings management, Foreign board members, Language, Linguistic relativity, Nordic countries
- in
- International Business Review
- volume
- 28
- issue
- 1
- pages
- 16 pages
- publisher
- Elsevier
- external identifiers
-
- scopus:85052248920
- ISSN
- 0969-5931
- DOI
- 10.1016/j.ibusrev.2018.08.007
- language
- English
- LU publication?
- yes
- id
- 7fac7027-5c6b-439d-a36e-e9a56e0641e2
- date added to LUP
- 2018-09-14 11:02:01
- date last changed
- 2022-04-25 08:50:33
@article{7fac7027-5c6b-439d-a36e-e9a56e0641e2,
abstract = {{<p>The internationalization of firms has led to boards becoming more international as well. In this study, we investigate the consequences of board internationalization. In particular, by drawing on research on language and board dynamics, we identify theory-based reasons why board internationalization could increase, or decrease, earnings management practices. We use agency theory, stressing how board internationalization may positively or negatively affect monitoring quality of boards. Next to agency theory, we use theories explaining how language differences in the boardroom complicates communication and how differences in language structures (referred to as linguistic relativity in the literature) affect directors’ perception and detection of earnings management practices. Using a sample of 3249 firm-year observations representing 586 non-financial listed Nordic firms during 2001–2008, we find that the presence of non-Nordic foreign directors on the board is associated with significantly higher levels of earnings management. Our analysis indicates that this effect is driven by language-related factors, as well as by the level of foreign board members’ accounting knowledge.</p>}},
author = {{Hooghiemstra, Reggy and Hermes, Niels and Oxelheim, Lars and Randøy, Trond}},
issn = {{0969-5931}},
keywords = {{Agency theory; Board diversity; Earnings management; Foreign board members; Language; Linguistic relativity; Nordic countries}},
language = {{eng}},
month = {{02}},
number = {{1}},
pages = {{119--134}},
publisher = {{Elsevier}},
series = {{International Business Review}},
title = {{Strangers on the board : The impact of board internationalization on earnings management of Nordic firms}},
url = {{http://dx.doi.org/10.1016/j.ibusrev.2018.08.007}},
doi = {{10.1016/j.ibusrev.2018.08.007}},
volume = {{28}},
year = {{2019}},
}