Corporate Governance, Accounting Outcomes, and Organizational Performance

71 Pages Posted: 30 Mar 2007

See all articles by David F. Larcker

David F. Larcker

Stanford University - Graduate School of Business

Scott A. Richardson

AQR Capital Management, LLC; London Business School

A. Irem Tuna

London Business School

Abstract

The empirical research examining the association between typical measures of corporate governance and various accounting and economic outcomes has not produced a consistent set of results. We believe that these mixed results are partially attributable to the difficulty in generating reliable and valid measures for the complex construct that is termed corporate governance. Using a sample of 2,106 firms and 39 structural measures of corporate governance (e.g., board characteristics, stock ownership, institutional ownership, activist stock ownership, existence of debt-holders, mix of executive compensation, and anti-takeover variables), our exploratory principal component analysis suggests that there are 14 dimensions to corporate governance. We find that these indices have a mixed association with abnormal accruals, little relation to accounting restatements, but some ability to explain future operating performance and future excess stock returns.

Keywords: corporate governance, earnings quality, firm performance, principal component analysis, recursive partitioning

JEL Classification: G34, M41, J33, G32, G12, G14

Suggested Citation

Larcker, David F. and Richardson, Scott Anthony and Tuna, Ayse Irem, Corporate Governance, Accounting Outcomes, and Organizational Performance. Accounting Review, October 2007. Available at SSRN: https://ssrn.com/abstract=976566

David F. Larcker

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

Scott Anthony Richardson (Contact Author)

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Ayse Irem Tuna

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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