The effect of board structure on the usefulness of accounting information.

This study examines the importance of board of director characteristics on the relationship between accounting earnings and security returns. Extant literature has shown that the strength of the relationship between accounting earnings and security returns is negatively related to the noise contained in the reported earnings. Management has considerable discretion over accounting information and may make accounting choices that are in their own self-interest and not representative of the underlying economic transactions. Such accounting choices result in reported earnings that contain more noise and have a weaker relationship with market returns. Agency theory suggests that shareholders can limit such aberrant activities by monitoring management behavior through the board of directors This study examines the market's perception of board monitoring effectiveness with an empirical model consisting of board of director characteristics documented to have an effect on monitoring effectiveness.