Accounting Conservatism and Voluntary Corporate Governance Mechanisms by Australian Firms

32 Pages Posted: 9 Sep 2012

See all articles by Kamran Ahmed

Kamran Ahmed

Darren Henry

La Trobe University - Department of Economics and Finance; Financial Research Network (FIRN)

Date Written: September 2012

Abstract

This study examines the relationship between voluntary adoption of selected corporate governance mechanisms and accounting conservatism for a sample of firms listed on the Australian Securities Exchange (ASX) over the 11‐year period prior to the promulgation of the ASX Corporate Governance Council Good Governance Principles and Best Practice Recommendations in 2003. Using four accounting and market‐based accounting conservatism measures, our results provide evidence of both conditional and unconditional conservatism in accounting reporting for Australian firms. We find that voluntary audit committee formation, increasing board independence and decreasing board size are positively associated with unconditional accounting conservatism and negatively related to the degree of conditional conservatism. Our results support the contention that firms voluntarily adopting perceived best practice corporate governance mechanisms employ unconditional accounting conservatism as a complimentary agency control device and are consistent with the observed negative association between the unconditional and conditional forms of accounting conservatism practice.

Keywords: Conditional conservatism, Unconditional conservatism, Corporate governance, Board structure, Audit committee

JEL Classification: G3, M41

Suggested Citation

Ahmed, Kamran and Henry, Darren, Accounting Conservatism and Voluntary Corporate Governance Mechanisms by Australian Firms (September 2012). Accounting & Finance, Vol. 52, Issue 3, pp. 631-662, 2012, Available at SSRN: https://ssrn.com/abstract=2143487 or http://dx.doi.org/10.1111/j.1467-629X.2011.00410.x

Darren Henry

La Trobe University - Department of Economics and Finance ( email )

Department of Economics and Finance
La Trobe Business School
Bundoora 3086 Victoria
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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