Earnings management and board member tenure, affiliations and re-election term duration: evidence from the UK

Purpose The purpose of this study is to investigate the impact of board members’ tenure, affiliations and re-election term duration on restraining upward earnings management practices for UK non-financial listed companies. Design/methodology/approach This study’s sample comprises 177 non-financial companies listed on the London Stock Exchange FTSE 350. The data was collected from the Thomson Reuters DataStream database over the period 2012–2019, with a total of 1,201 firm-year observations. The pooled OLS regression analysis is used to investigate the association between the independent variables and the signed discretionary accruals as a proxy for upward earnings management. The principal component analysis and the analysis of the potential moderation effect among the examined associations are also used in this study. Findings The findings of this study indicate that longer board member tenure is linked to increased upward earnings management because of potential conflicts of interest and familiarity with management. However, board members with more affiliations to other companies tend to decrease upward earnings management because of their diverse experience resulting from their positions in other firms and their willingness to safeguard their reputation. The re-election period also plays a role; members up for re-election after three years are more likely to reduce upward earnings management than those with annual re-election. Members with a longer re-election period might have a deeper understanding of the company and more job security and stability to focus on long-term strategies and the integrity of financial reporting. Research limitations/implications The sample is constrained to UK companies. Practical implications These findings provide potentially important insights and implications for companies, regulators and shareholders about the critical impact of the board characteristics on restraining earnings management practices. Originality/value This study investigates the association between upward earnings management and different board characteristics that are under-researched and often overlooked within the UK regulatory context.