The impact of earnings management and operating performance on voluntary resignation of outside directors

Abstract

This study investigates the association between income-increasing earnings management, operating performance, and the probability of voluntary resignation of outside directors during the term of the outside directorship. Estimation of probit model presents following results. First, the probability of outside director resignation increases as firms engage in more income-increasing earnings management. Second, the probability of outside director resignation increases when the firms report negative income. Third, the probability of outside director resignation increases further when firms report negative income despite an income-increasing earnings management.