Citations (1)



Accounting Conservatism and Board Efficiency

Yanmin Gao

City University of Hong Kong - College of Business

Alfred Wagenhofer

University of Graz

March 2014

AAA 2013 Management Accounting Section (MAS) Meeting Paper

This paper establishes a positive relation between board efficiency and conservative accounting. This result provides a theoretical underpinning for empirical studies that find a positive association between strong corporate governance and conservatism. Our model includes a board that has a monitoring and an advising role and decides to retain or replace the incumbent manager based on accounting information. The optimal decisions trade off the expected cost of monitoring and of replacing the manager. Conservatism is desirable because it makes monitoring more effective, provided the board is an efficient monitor. Earnings management tends to undo the benefit of conservative accounting, implying a negative relation between conservatism and earnings management. We also examine the interaction between board composition and conservatism.

Number of Pages in PDF File: 48

Keywords: conservative accounting, corporate governance, board of directors, monitoring, management retention

JEL Classification: M41, G34, D82

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Date posted: August 12, 2012 ; Last revised: March 24, 2014

Suggested Citation

Gao, Yanmin and Wagenhofer, Alfred, Accounting Conservatism and Board Efficiency (March 2014). AAA 2013 Management Accounting Section (MAS) Meeting Paper. Available at SSRN: http://ssrn.com/abstract=2128226 or http://dx.doi.org/10.2139/ssrn.2128226

Contact Information

Yanmin Gao
City University of Hong Kong - College of Business ( email )
Hong Kong
Hong Kong
Alfred Wagenhofer (Contact Author)
University of Graz ( email )
+43 316 380 3500 (Phone)
+43 316 380 9565 (Fax)
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