Board interlocks and earnings management contagion

Peng Chia Chiu, Siew Hong Teoh, Feng Tian

Research output: Journal article publicationJournal articleAcademic researchpeer-review

262 Citations (Scopus)


We test whether earnings management spreads between firms via shared directors. We find that a firm is more likely to manage earnings when it shares a common director with a firm that is currently managing earnings and is less likely to manage earnings when it shares a common director with a non-manipulator. Earnings management contagion is stronger when the shared director has a leadership or accounting-relevant position (e.g., audit committee chair or member) on its board or the contagious firm's board. Irregularity contagion is stronger than error contagion. The board contagion effect is robust to controlling for endogenous matching of firms with directors, fixed firm/director effects, incidence of M&A, industry, and contagion via a common auditor or geographical proximity. These findings support the view that board monitoring plays a key role in the contagion and quality of firms' financial reports.
Original languageEnglish
Pages (from-to)915-944
Number of pages30
JournalAccounting Review
Issue number3
Publication statusPublished - 1 May 2013
Externally publishedYes


  • Board interlocks
  • Board networks
  • Contagion
  • Earnings management
  • Governance
  • Restatements
  • Social networks

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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