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28
TABLE 1
Sample Selection Procedure
Hand-collected audit committee compensation data during fiscal years 2003-2012 3,895
Less: Financial institutions (SIC codes 6000-6999) (28)
Less: Observations due to missing data after merging audit committee compensation data with BoardEx (52) Less: Observations due to missing data after merging with Compustat and Execucomp (1,497)
Final Sample 2,318
*The definitions of all the variables are as follows: ABS_DA is the absolute value of abnormal accrual (adjusted by ROA) measured by Cohen and Zarowin (2010); AQ is measured by the standard deviation of the residuals of firm-level time-series model (5) specified in Dechow and Dichev (2002) over a rolling four-year period; EQUITY % denotes the ratio of equity-based compensation to total compensation paid to the audit committee members; ACCEXP represents the ratio of the number of audit committee members who are CPA or have accounting-related experience to audit committee size; ACSIZE denotes the number of audit committee members; MEETINGTIMES is the number of yearly audit committee meetings;
ZSCORE is the deciles rank of Altman’s (1968) Z-score; ROA_ind represents the industry-median-adjusted return on assets; LnASSET is the natural log of a company’s total assets;
Big4 is an indicator variable that equals 1 if a company’s year t financial statements are audited by a Big 4, and 0 otherwise; BDSIZE is the natural log of the number of total board directors; BDINDEP represents the percentage of non-audit committee directors who are independent; MB is a company’s market-to-book ratio; AGE is the natural log of the number of years a firm has been publicly traded; TENURE is the natural log of auditor tenure.
30 TABLE 3
Regression of Abnormal Accruals on CEO Power and Clawbacks
CEO Power Effect Clawback Effect
Variablesa Predicted
Signs
Coefficientsb (t statistics)
Coefficientsb (t statistics)
Intercept ? 0.162*** 0.163***
(4.39) (4.41)
EQUITY% + 0.010*** 0.092***
(2.57) (2.66)
ACCEXP -0.031* -0.030*
(-1.69) (-1.79)
CPOWER + 0.011*** 0.011***
(2.61) (2.63)
CPOWEREQUITY% + 0.052*** 0.014***
(2.78) (2.96)
CPOWER ACCEXP + 0.079** 0.063**
(-2.22) (-2.21)
CPOWERCB -0.098***
(-2.42)
CPOWEREQUITY%CB -0.011*
(-1.89)
CPOWER ACCEXPCB -0.025**
(-2.17)
MEETINGTIMES -0.003* -0.002*
(-1.88) (-1.89)
ACSIZE -0.005** -0.005**
(-2.14) (-2.14)
ZSCORE + 0.002*** 0.002***
(3.58) (3.62)
ROA_ind -0.061* -0.060*
(-1.81) (-1.83)
LnASSET -0.004* -0.004*
(-1.91) (-1.95)
BIG4 -0.081*** -0.080***
(-3.54) (-3.51)
BDSIZE + 0.002* 0.006*
(1.71) (1.84)
BDINDEP -0.028* -0.028*
(-1.85) (-1.71)
MB + 0.001 0.0008
(1.25) (1.26)
AGE -0.013*** -0.013***
(-3.26) (-3.27)
TENURE -0.014* -0.011*
(-2.09) (-1.71)
Fixed Effects Included Included
N 2,318 2,318
Adjusted R2 0.216 0.218
F Statistic 10.36*** 9.92***
aThe definitions of all the variables are as follows: ABS_DA is the absolute value of abnormal accrual (adjusted by ROA)
31
measured by Cohen and Zarowin (2010); AQ is measured by the standard deviation of the residuals of firm-level time-series model (5) specified in Dechow and Dichev (2002) over a rolling four-year period; EQUITY % denotes the ratio of equity-based compensation to total compensation paid to the audit committee members; ACCEXP represents the ratio of the number of audit committee members who are CPA or have accounting-related experience to audit committee size; ACSIZE denotes the number of audit committee members; MEETINGTIMES is the number of yearly audit committee meetings; ZSCORE is the deciles rank of Altman’s (1968) Z-score; ROA_ind represents the industry-median-adjusted return on assets; LnASSET is the natural log of a company’s total assets; Big4 is an indicator variable that equals 1 if a company’s year t financial statements are audited by a Big 4, and 0 otherwise; BDSIZE is the natural log of the number of total board directors; BDINDEP represents the percentage of non-audit committee directors who are independent; MB is a company’s market-to-book ratio; AGE is the natural log of the number of years a firm has been publicly traded; TENURE is the natural log of auditor tenure.
bIn estimating the t statistics, I use two-way clustering to adjust standard errors. Asterisks *, **, and *** denote two-tailed significance levels at 10%, 5%, and 1%, respectively.
32 TABLE 4
Regression of Accrual Quality on CEO Power and Clawbacks
CEO Power Effect Clawback Effect
Variablesb Predicted
Signs
Coefficientsc (t statistics)
Coefficientsc (t statistics)
Intercept ? 0.744*** 0.731***
(3.69) (3.62)
EQUITY% + 0.071*** 0.062***
(2.81) (2.93)
ACCEXP -0.065*** -0.066**
(-2.63) (-2.49)
CPOWER + 0.019*** 0.042***
(2.79) (2.78)
CPOWEREQUITY% + 0.082*** 0.137***
(3.18) (2.98)
CPOWER ACCEXP + 0.079** 0.128**
(2.45) (2.49)
CPOWERCB -0.132***
(-2.66)
CPOWEREQUITY%CB -0.244*
(-1.99)
CPOWER ACCEXPCB -0.368***
(-3.02)
MEETINGTIMES -0.002* -0.001*
(-1.85) (-1.71)
ACSIZE -0.012** -0.012**
(-2.44) (-2.03)
ZSCORE + 0.002 0.002
(1.59) (1.44)
ROA_ind -0.461** -0.456**
(-2.56) (-2.53)
LnASSET -0.003*** -0.007**
(-2.79) (-2.26)
BIG4 -0.172** -0.154**
(-2.41) (-2.23)
BDSIZE + 0.023* 0.024*
(1.87) (1.70)
BDINDEP -0.184* -0.182***
(-1.72) (-1.69)
MB + 0.002 0.003
(1.23) (1.19)
AGE -0.035 -0.033
(-1.59) (-1.50)
TENURE -0.058*** -0.058***
(-3.10) (-3.06)
Fixed Effects Included Included
N 2,318 2,318
Adjusted R2 0.153 0.155
F Statistic 7.16*** 6.91***
aThe definitions of all the variables are as follows: ABS_DA is the absolute value of abnormal accrual (adjusted by ROA)
33
measured by Cohen and Zarowin (2010); AQ is measured by the standard deviation of the residuals of firm-level time-series model (5) specified in Dechow and Dichev (2002) over a rolling four-year period; EQUITY % denotes the ratio of equity-based compensation to total compensation paid to the audit committee members; ACCEXP represents the ratio of the number of audit committee members who are CPA or have accounting-related experience to audit committee size; ACSIZE denotes the number of audit committee members; MEETINGTIMES is the number of yearly audit committee meetings; ZSCORE is the deciles rank of Altman’s (1968) Z-score; ROA_ind represents the industry-median-adjusted return on assets; LnASSET is the natural log of a company’s total assets; Big4 is an indicator variable that equals 1 if a company’s year t financial statements are audited by a Big 4, and 0 otherwise; BDSIZE is the natural log of the number of total board directors; BDINDEP represents the percentage of non-audit committee directors who are independent; MB is a company’s market-to-book ratio; AGE is the natural log of the number of years a firm has been publicly traded; TENURE is the natural log of auditor tenure.
bIn estimating the t statistics, I use two-way clustering to adjust standard errors. Asterisks *, **, and *** denote two-tailed significance levels at 10%, 5%, and 1%, respectively.