IS A BOARD CHAIR’S ASSOCIATION WITH RELIGIOSITY CONTAGIOUS IN THE FINANCIAL REPORTING PROCESS? NONPROFESSIONAL INVESTORS RENDER THEIR PROGNOSIS

R. Steven Flynn, Thomas More University, Crestview Hills, Kentucky, U.S.A.

Published in

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH
Volume 19, Issue 2, p23-28, June 2019

ABSTRACT

Accounting research posits that religiosity, either within a firm or within its reporting environment, may help to deter earnings management and lead to greater individual investor trust. Unrelated archival studies of accounting contagions also find that the earnings practices of other entities at which board chairs have served as directors may affect the quality of a firm’s financial reports. Combining the concepts of religiosity and accounting contagions, this study examines in an experimental setting the effect of a nonreligious firm’s board chair’s directorship ties to religiosity, a potentially positive accounting contagion, on nonprofessional investors’ perceptions of earnings quality. Inconsistent with results of investigations of religiosity’s extensive cultural pervasiveness, the study finds that in the more narrowly defined environment of director interactions, nonprofessional investors did not view a board chair’s directorship association with another firm’s religiosity as effective in enhancing a nonreligious firm’s reporting credibility or dampening its incentive to manage earnings. This absence of a perceived positive contagion effect suggests that in a more restricted context with limited cultural pervasiveness religiosity may not provide the needed antidote to assuage individual investor mistrust.

Keywords

Shared Directorships, Religiosity, Contagion, Earnings Management, Earnings Quality, Nonprofessional Investors


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