Director Connectedness, Career Concerns, and Monitoring Efficacy∗ Vincent J. Intintoli Clemson University Tel: 864-656-2263 Email:
[email protected] Kathleen M. Kahle University of Arizona Tel: 520-621-7489 Email:
[email protected] Wanli Zhao Southern Illinois University Tel: 618-453-7109 Email:
[email protected] June 2016 JEL Classifications: G30; J33; M52; Keywords: Centrality; Director connectedness; Director Turnover; Financial Reporting Quality; Conservatism; Audit Committee; Misconduct; ∗ We thank Amir Barnea, David Becher, Luke DeVault, Vladimir Gatchev, Samir Ghannam, Ivan Gloris, Daniel Greene, Sandy Klasa, Jayanthi Krishnan, Brandon Lockhart, Angie Low, David Mauer, Angela Morgan, Tom Omer, David Reeb, Matthew Serfling, Johan Sulaeman, Jayanthi Sunder, Mike Weisbach, Jack Wolf, Ryan Williams, Fei Xie, and Bernard Yeung; seminar participants at Clemson University, Nanyang Technological University, and National University of Singapore; and conference participants at the 2015 American Accounting Association (AAA) annual meeting, the 2015 Financial Management Association (FMA) annual meeting, and the 28th Australasian Finance and Banking Conference (AFBC) for useful comments. An earlier version of this paper was titled “Board Effectiveness and Board Connectedness”. Abstract We use a novel measure of connectedness to examine a specific channel by which director connectedness may improve monitoring in the firm: financial reporting quality. We find that the connectedness of independent, non-co-opted audit committee members has a positive effect on the quality of financial reporting and on accounting conservatism. The effect is positive but not significant for non-audit committee members or co-opted audit committee members. Our results are robust to multiple tests designed to mitigate self-selection issues.