Multiple Directroship and Quality of Financial Statements of Finnish Companies

Abstract

The research looked into the multiple directorships and the quality of financial statements in Finnish companies. Previous research had indicated that multiple directorships had positive impact on the quality of financial statements especially due to the experience and capabilities brought by directors holding multiple directorship positions. However, other previous researchers had argued that multiple directorships resulted in directors’ busyness. This investigation seeks to assess the exact impact of multiple directorships of Finnish companies on the quality of financial statements. The investigation held that the multiple directorships of the board of directors could be categorized into three categories that were the audit committee directors, finance committee directors and the executive committee directors. The quality of financial statement could be examined through Return on Investment (ROI) and the Price/Book (P/B) ratios. In regard to the research methods, the investigation applied positivism research philosophy and quantitative research method. The data was collected from 25 Finnish companies for a period of five years that is from 2013 to 2017. The data was derived from the companies’ annual financial statements. Linear regression models and correlations were applied during data analysis to determine the relationship between the multiple directorship variables and the quality of financial statement variables. The results established that the multi directorship of audit committee had negative impact on the quality of financial statements as there was a negative correlation between audit committee multiple directorship and measures of financial statements quality such as ROI and P/B ratio. The investigation also established that the multi directorship of finance committee had negative impact on the quality of financial statements. However, multi directorship of executive committee had positive impact on the quality of financial statements. The main weakness of this investigation was its reliance on the financial statements produced by the company only which were likely to be subjective compared to financial statements presented by independent entities. The quantitative research also meant that it was difficult to understand the reason behind the results. Therefore, future research should apply the qualitative research design in order to obtain explanations from the phenomena.