會計審計論叢 Review of Accounting and Auditing Studies

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RAAS 2023/06
Vol.13 No.1: 45-82

Does the Social Ties of Independent Director and the Audit Partner's Engagement Networks Affect Accrual-Based Earnings Management?

Yu-Shan Chang¹, and Fan-Hua Kung^1*
¹Department of Accounting, Tamkang University

Abstract: Many past studies have focused only on the impact of individual independent directors or audit partners on a company; thus, this study expands on the current literature by focusing on the “social ties” or “cooperation networks” between individuals through learning or working experience as the center of this investigation, rather than on individuals in isolation. The purpose of this study is to compare the relationship between a company's internal oversight functions (the social ties of the independent director and CEO) and the external oversight role (the engagement networks of the audit partner) as well as examines the impact of their interaction on accrual-based earnings management. The empirical results show that professional ties between independent directors and CEO would allow the company to make upward discretionary accruals; when the interaction of the audit partners' engagement network was further observed, it was found that the higher the professional ties between the CEO and the independent directors and the lead audit partner's first-level engagement network, the less it would allow the company to manage earnings upward. In conclusion, the results of this study aim to provide stakeholders in the practical community and government agencies with more detailed considerations for regulations involving the qualification and independence of independent directors and supervisors, as well as the selection of audit partners.

Keywords: Independent director; Social ties; Engagement networks; Accrual-based earnings management

* Corresponding author ; e-mail: kung@mail.tku.edu.tw

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