Regulatory Reforms on Independent Directors and Earnings Management of Listed Firms in Thailand

Abstract

This study aimed at investigating the effects caused by regulatory reforms in the proportion of independent directors towards earnings management of listed companies on the Stock Exchange of Thailand. The study compared changes of earnings management of the two sample groups, the compliant firms and the noncompliant firms, before and after the regulatory reforms. The analysis of data was based on descriptive statistics and the multiple regression. Discretionary accruals were used as the proxies for measuring earnings management. Data was collected from financial statements of listed companies during 2007 – 2011 in amounting of 305 sample firms. The results showed that after the regulatory reforms in the proportion of independent directors, earnings management of the noncompliant firms was not statistically different when comparing to those compliant firms. However, in the case of the noncompliant firms with low information acquisition cost, the study found that earnings management were decreased significantly. This reflects that the regulatory reforms regarding the proportion of independent directors reduced earnings management for the firms with low information acquisition cost. Nevertheless, the regulatory reforms were not effectively enough to reduce earnings management of the overall firms.