*2.1. Board Independence*

NUES (2018) recommend that most of the shareholder-elected members of the board should be independent of the company's executive personnel and material business contacts, while at least two of the shareholder-elected members should be independent of the company's main shareholders. Independent directors are chosen in the interest of shareholders, adding value due to their impartial monitoring of business ethics (Rosenstein and Wyatt 1990). Independent board members are associated with effective monitoring (Fama 1980), while nonindependent board members are considered an obstacle to efficient monitoring (Ronen and Yaari 2008). It is assumed that effective monitoring controls earnings management, as suggested in studies investigating board independence and earnings management (Dechow et al. 1996; Beasley 1996; Klein 2002; Peasnell et al. 2005). Haldar et al. (2018)

and Van den Berghe and Baelden (2005) do however point to other important aspects of directors' independence. They argue that the quality of independent directors depends on other factors specific to the directors' character, the firm and its environment. In accordance with prior earnings management literature, the following hypothesis is tested:

**Hypothesis 1** (**H1**). *There is a negative relation between board independence and earnings management*.
