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Non‐generally accepted accounting principles disclosures and audit committee chairs’ external directorships

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  • Cheng‐Hsun Lee
Abstract
I examine the relation between the quality of non‐generally accepted accounting principles (GAAP) earnings disclosures and the number of external directorships held by a firm's independent audit committee chair (ACC). I find that firms with ACCs holding more external directorships provide higher quality non‐GAAP disclosures than those who do not hold outside board positions. When the ACC has at least one external directorship, the firm's non‐GAAP exclusions are more transitory, indicating that they are of higher quality. In addition, when the ACC has at least one external directorship, non‐GAAP exclusions that are incremental to those excluded by analysts are smaller in magnitude and therefore are less aggressive. Overall, the results suggest that the number of external directorships ACCs holds plays an important role in firms’ non‐GAAP disclosures. The results are consistent with a reputation cost perspective, where ACCs with more external directorships face higher reputation concerns from having more to lose, resulting in stronger monitoring and thus higher quality non‐GAAP disclosures.

Suggested Citation

  • Cheng‐Hsun Lee, 2022. "Non‐generally accepted accounting principles disclosures and audit committee chairs’ external directorships," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(1-2), pages 111-139, January.
    • Handle: RePEc:bla:jbfnac:v:49:y:2022:i:1-2:p:111-139
    DOI: 10.1111/jbfa.12566
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