Board interlocks and earnings management: conditional effects across director type

This study examines whether board interlocks are related to earnings management among KOSPI-listed firms in Korea from 2019 to 2024. Board interlocks may bring external information, experience, and reputational capital into the boardroom. The same ties, however, can weaken oversight when directors hold multiple appointments or when reporting practices travel through director networks. This study tests which interpretation better explains firms' financial reporting behavior. Earnings management is measured primarily by discretionary accruals from the Modified Jones model. Additional tests use the Kothari model, signed discretionary accruals and real earnings management. Board interlocks are measured at the total-board, inside-director, and outside-director levels, with further tests using alternative interlock definitions. The results show a positive relation between board interlocks and accrual-based earnings management. This relation remains evident across alternative interlock definitions and the Kothari-based measure. Signed accrual tests show that interlocks are related to larger discretionary accruals in both income-increasing and income-decreasing directions, rather than to one reporting direction alone. By contrast, the evidence for real earnings management is weaker, suggesting that the main results are concentrated in accrual-based reporting discretion. Director-type analyses indicate that inside- and outside-director interlocks capture different aspects of board networks, although neither type dominates across all specifications. Taken together, the evidence suggests that board interlocks in Korea are not merely advisory channels. They are also tied to weaker monitoring and the diffusion of reporting practices.