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Rediscovering Board Expertise: Legal Implications Of The Empirical Literature, Lawrence A. Cunningham

GW Law Faculty Publications & Other Works

This paper reviews and draws insights from recent empirical research in financial accounting on the value of director expertise for financial reporting quality. Among important consequences of Sarbanes-Oxley is an increase in the percentage of accounting experts on boards of directors, particularly on audit committees.

The research reviewed here documents the value of this expertise in promoting financial reporting quality measured in terms of "accounting earnings management" (artificial bookkeeping manipulations). These findings contrast with well-known evidence showing little value arising from director independence.

The research holds numerous implications and raises important questions, including the following:

1. It shows that accounting …