The influence of director stock ownership and board discussion
transparency on financial reporting quality
Seventy-two active corporate directors participate in an experiment where management
insists on aggressive recognition of revenue, but the chief audit executive proposes a more
conservative approach. Results indicate interactive effects of director stock ownership and
the transparency of director decisions. Stock-owning directors are more likely to oppose
management’s attempts to manage earnings when transparency increases. For non-stock
owning directors, however, increasing transparency does not affect the likelihood that
directors oppose management’s attempts to manage earnings. The current study challenges
suppositions that equate director stock ownership with improved financial reporting
and higher corporate governance quality, and it provides evidence that increased
transparency is beneficial when director compensation plans threaten director
independence.