Resignations of Directors after Rebar Crisis and Earnings Management

The purpose of this study is to examine whether the trend of resignations of directors immediately after the outbreak of the Rebar Group scandal is related with earnings management. The unusual large scale law enforcement action and pressure from the society for a severe punishment might have caused the directors to reassess the risks they should bear as directors. There-fore, the resignation may be an indication of abnormal financial conditions. The empirical evidence supports our hypothesis that the magnitude of earnings management, measured by absolute value of discretionary accruals, of resignation-companies is higher than other firms. Out results are still robust after controlling for these confounding factors, financial ratios and ex-treme financial performance.