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Answer this question: If you were a director, how would you try to determine whether your firm was engaged in earnings management (see Cornett et al for reference)?  What would you do to discourage this practice?

Do peer review of this question: Larcker et al find that firms with a greater proportion of blockholders, a compensation mix that is weighted toward accounting performance, lead directors, smaller boards, and fewer busy directors exhibit superior future operating performance (i.e., an accounting-based measure).  They also find that future excess stock returns (i.e., a market-based measure) are higher when compensation mix is weighted toward accounting performance, there is a lead director, and insider power is low.  Choose one of these performance measures (either accounting-based or market-based) and one of the aforementioned governance characteristics, and briefly discuss whether the result corresponds with your intuition and why.  For example, you might state "I would expect that firms with smaller boards would exhibit superior future operating performance because ..."

Peer’s answer:  I would expect that firms with smaller boards would exhibit superior future operating performance because in my opinion, smaller boards are easier to reach an agreement when having a discussion. Smaller boards are easier to manage and cost less expense. When there is a lead directors in the board, the director can get information from the board efficiently and make plan for the firm quickly.