From Boardroom to Balance Sheet: How Director Quality Affects Accounting Practices and Disclosures

ABSTRACT Based on the leadership responsibilities embedded in the legal duties of all directors, we construct a new model of director quality. Averaging across the quality of individual directors, we estimate the quality of the board itself and explore how it affects a firm's accounting practices. We find that higher‐quality boards manage their earnings less, restate their financials less frequently, and hire higher‐quality auditors. Additionally, these boards are more transparent, voluntarily disclose business risks, limit non‐audit services, and are associated with higher levels of performance. We confirm causality using director death as an exogenous shock.