Matsunaga, StevenHsu, Pei Hui2013-10-032013-10-032013-10-03https://hdl.handle.net/1794/13220Evidence that firms adjust accruals to just meet or beat analyst forecasts is pervasive. However, the implications for earnings quality are not clear. Managers can use this practice either to mislead investors, resulting in lower quality earnings, or to signal future earnings growth and thereby improve the decision usefulness of earnings. Assuming that boards are concerned about providing higher quality financial information and that they can discern the proper earnings signal, they should discourage managers from adjusting earnings to beat the analyst forecast target if such adjustment diminishes earnings quality. Consistent with this prediction, I find a significantly negative relation between the probability that a firm beats the target by adjusting accruals and the presence of at least one independent audit committee financial expert for firms with poor future performance. I also find that the negative impact of an independent financial expert on the odds of beating the target by adjusting accruals is significantly stronger for firms with poor future performance than for firms with strong future performance. These findings are consistent with financial expertise on the audit committees improving corporate governance by protecting shareholders from accruals management that reduces the decision usefulness of earnings.en-USAll Rights Reserved.Analyst forecast targetAudit committee financial expertiseEarnings managementElectronic Thesis or Dissertation