Director network ties and the quality of financial oversight
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2017-08-23
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en
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Abstract
The European Union introduced legislation outlining mandatory audit rotation to improve auditor independence and by extent improve the quality of financial oversight. Opponents of this legislation claim that the benefits of potentially increasing auditor independence do not outweigh the costs of the frequent rotation and costly initial audits, and that legislator efforts should be utilized differently. This thesis studies the effects of past and present ties between directors and directors of auditing firms on the quality of financial oversight. The sample consists of firms listed at the FTSE Euronext 100 Index, and studies the years 2008-2012. We hypothesize a negative effect of the amount of ties on financial oversight and expect a stronger relation from ties based on friendship networks than ties based on advice networks. No significant effects are found for ties in our accruals model and contrary to our first hypothesis, a significant positive effect is found for employment ties. When testing for robustness we find a significant negative effect of education of audit fees, while other results remain the same.
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Faculteit der Managementwetenschappen