All that glitters is not gold! Independent directors' attributes and earnings quality: Beyond formal independence

Research Question/Issue This paper examines the effect of additional independent directors' attributes, beyond formal independence, on earnings management practices. Research Findings/Insights I find that being non-busy, having accounting expertise, and being appointed by non-controlling shareholders are relevant directors' attributes-beyond formal independence-in their earnings management monitoring task, among the directors' attributes I have tested. Additionally, the paper shows that independent directors who possess such features simultaneously outclass all other directors-included the touted effective formally independent directors-in mitigating earnings management activities. Theoretical/Academic Implications I respond to calls for dismantling common wisdom on board independence, investigating factors leading to better monitoring, showing that independent directors are not all-alike. With specific reference to directors' monitoring task, when controlling for additional directors' attributes, formal independence becomes uninfluential in constraining earnings management activities. I also show that the co-existence of attributes makes independent directors more effective relative to board mates not sharing such attributes. Practitioner/Policy Implications Findings of this work might be useful for practitioners in attempting to design corporate governance mechanisms better able to monitor earnings management practices through independent directors and may serve as a stimulus for regulators when re-thinking regulations on board composition and structure.