Board Long-Term Orientation, Earnings Management, Disclosure and Risk


  • Hernan Herrera-Echeverry Universidad EAFIT, Colombia
  • Jerry Haar College of Business, Florida International University, USA
  • Daniel Velasquez-Gaviria Faculty of Economic and Administrative Sciences, Metropolitan Institute of Technology-ITM, Colombia
  • Siddharth Upadhyay College of Business, Florida International University, USA



long-term orientation, board compliance , downside risk, performance disclosure, corporate governance


Short-term thinking continues to dominate corporate decision making due to the pressure to achieve expected quarterly earnings. As such, strategic goals take a back seat to short-term performance among the prime objectives of CEOs, the board of directors and management teams. Be that as it may, shareholders and stakeholders expect corporate leaders to pay equal attention to the long-term health of the corporate enterprise. An empirical study is conduced to test how long-term oriented board of directors diminish earnings management, increase disclosure and reduce risk. The results show that a long-term board orientation decreases earnings smoothing, stock price synchronicity and downside risk. To study this relationship, we construct a panel data from 2004 to 2015 comprising of 2834 OECD country firms. We conclude that board independence, board expertise and board audit committee activity increase long-term firm orientation. We find that boards with these characteristics are prone to the implementation of executives’ long-term incentives, suggesting that a long-term orientation is beneficial not only to increase firms’ transparency and disclosure but also to reduce firms’ downside risk. Firms with long-term orientation reveal enough information to avoid stock price synchronicity, prevent the use of earnings management to conceal real firm performance and reduce downside risk - all decreasing the chance of financial failure. The results of the study not only nullify the arguments that there is no impact of long-term orientation and long-term incentives but also bolster and enrich the stream of literature that supports these variables’ impact on earnings management, stock price synchronicity and downside risk. Within the context of the international setting of the paper, we have substantiated the external validity of the results across geographies and country-wide regulations.

Author Biography

Hernan Herrera-Echeverry, Universidad EAFIT, Colombia

Hernan Herrera-Echeverri is a Professor at Universidad EAFIT in the area of ​​Corporate Finance. Director of the Master in Financial Administration (MAF) at Universidad EAFIT in Medellin. He is Ph.D in Management, Finance concentration a at Universidad de los Andes, Bogota, Colombia and visiting researcher at FIU (Florida International University) United States. He received his Master in Management at Universidad de los Andes . He is Specialist in Finance at Universidad EAFIT in Medellin-Colombia and Specialist in project management at Universidad Javeriana, Cali, Colombia. He graduated in System Engineering from the Universidad San Buenaventura de Colombia. He has been board member of several firms in Colombia. His research interests are related to topics in private equity, venture capital and corporate governance.

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