Abstract

http://ssrn.com/abstract=2128226
 
 

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Accounting Conservatism and Board Monitoring


Yanmin Gao


City University of Hong Kong - College of Business

Alfred Wagenhofer


University of Graz

August 1, 2016

AAA 2013 Management Accounting Section (MAS) Meeting Paper

Abstract:     
This paper provides a theoretical foundation for findings in empirical studies that document a positive association between conservatism and strong corporate governance through the board’s monitoring efficiency. We construct a model with a board that decides whether to replace the incumbent manager based on accounting information and the outcome of its monitoring strategy, which also depends on the accounting information. If accounting is used only for the replacement decision, conservatism is harmful. However, conservatism is beneficial if accounting is relevant to the monitoring decision because it enhances the net benefit of monitoring. The net benefit of conservatism increases if the board becomes more efficient in monitoring. We also discuss earnings management and specific empirical implications.

Number of Pages in PDF File: 47

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

JEL Classification: M41, G34, D82


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Date posted: August 12, 2012 ; Last revised: August 8, 2016

Suggested Citation

Gao, Yanmin and Wagenhofer, Alfred, Accounting Conservatism and Board Monitoring (August 1, 2016). 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 )
Austria
+43 316 380 3500 (Phone)
+43 316 380 9565 (Fax)
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