Discussion of “Audit committee financial expertise and earnings management: The role of status” by Badolato, Donelson, and Ege (2014)

- Badolato, Donelson and Ege examine the effectiveness of audit committee expertise.
- BDE find status interacts with financial expertise to deter irregularities.
- I review prior research on financial expertise and status.
- BDE׳s conclusions differ from prior findings and broad patterns in the data.
- I discuss effects of research design choices and self-selection on conclusions.

Badolato et al. (2014) (BDE) examine the effectiveness of audit committee financial expertise. They find that financial expertise does not deter irregularities unless the audit committee also has high status. I review prior research on financial expertise to place the current study in the literature and for guidance in assessing the paper׳s assumptions and empirical specifications. BDE׳s conclusions run counter to many of the prior findings and to broad patterns in the data. I discuss how empirical research design choices and self-selection may affect the paper׳s conclusions.