Board of Directors' Characteristics and Conditional Accounting Conservatism: Spanish Evidence
Juan Manuel García Lara
Universidad Carlos III de Madrid - Department of Business Administration
Beatriz Garcia Osma
Universidad Autonoma de Madrid
IESE Business School - University of Navarra
European Accounting Review, Forthcoming
Using a sample of Spanish listed firms for the period 1997-2002 we find that firms where the CEO has low influence over the functioning of the board of directors show a greater degree of accounting conservatism. We measure the influence of the CEO over the board of directors using two aggregate indexes combining 6 (8) characteristics of the functioning of the board of directors and its monitoring committees: board size, proportion of non-executive directors, proportion of independent directors, whether the chairman of the board is an executive director, the number of board meetings, and the existence of an audit committee, a nomination/remuneration committee and an executive committee. We define conservatism as the asymmetric recognition speed of good and bad news in earnings, and we measure it following Basu (1997) and Ball and Shivakumar (2005). Our results are robust to alternative specifications and specific controls for investment opportunities and for the endogenous nature of corporate governance and earnings quality. Overall, our evidence shows that firms with strong boards use conservative accounting numbers as a governance tool, even in an institutional setting with low litigation risk such as Spain.
Number of Pages in PDF File: 40
Keywords: Conservatism, Governance, CEO, Board of Directors, Earnings Timeliness, Spain
JEL Classification: M41, M44, M47, G34Accepted Paper Series
Date posted: July 10, 2007
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo4 in 0.437 seconds