Board characteristics and real earnings management

This study combines the real-earnings-management literature and the corporate-governance literature to examine how board characteristics affect real earnings management induced by benchmark meeting/beating incentives. Using a sample of U.S. listed companies over the period of 2003-2006, we find that managers are more likely to exercise real earnings management in order to avoid negative earnings, sustain prior year's earnings or meet/beat analysts' consensus earnings forecast. With regard to the role of board characteristics, our results indicate that boards with higher independence and professionalism can effectively constrain earnings-thresholds-induced real earnings management. Our overall findings are consistent with the notion that board governance plays a vital role in restraining real earnings management.