Do business trainings for audit committees matter in organizations? Focusing on earnings management

Abstract

This paper examines whether the increase in financial literacy of audit committee (AC) members induced by business trainings leads to the decrease in firms' earnings management, the act of misrepresenting the firms' financial performance. Using a novel hand-collected dataset of Korean listed companies for the period of 2018-2020, we find that business trainings increase the effectiveness of ACs by enhancing the ability to detect earnings management. Also, our results reveal that the positive effect of business trainings is more pronounced for AC members who lack financial literacy, which suggests that training programs are effective for less financially sophisticated members.