IDEAS home Printed from https://ideas.repec.org/a/bla/jbfnac/v48y2021i3-4p463-497.html
   My bibliography  Save this article

Nonstationarity in the relationship between corporate governance and accounting conservatism

Author

Listed:
  • Robert Kieschnick
  • Wenyun Shi

Abstract

Noe and Rebello (2012) argue that a firm's environment is not stationary and, as a result, the relationships between corporate governance and firm behavior change to adapt to changes in its environment. We provide evidence that a legal shock (Sarbanes–Oxley Act) and an economic shock (2007/2008 financial crisis) induced changes in the relationships between different corporate governance features and a firm's tendency to report conservatively. Additionally, we provide evidence on the weakness of fixed effects panel regressions to fully understand the effects of various corporate governance features on a firm's tendency to report conservatively.

Suggested Citation

  • Robert Kieschnick & Wenyun Shi, 2021. "Nonstationarity in the relationship between corporate governance and accounting conservatism," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(3-4), pages 463-497, March.
    • Handle: RePEc:bla:jbfnac:v:48:y:2021:i:3-4:p:463-497
    DOI: 10.1111/jbfa.12488
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/jbfa.12488
    Download Restriction: no
    File URL: https://libkey.io/10.1111/jbfa.12488?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Ryan Lafond & Sugata Roychowdhury, 2008. "Managerial Ownership and Accounting Conservatism," Journal of Accounting Research, Wiley Blackwell, vol. 46(1), pages 101-135, March.
    2. Klein, April, 2002. "Audit committee, board of director characteristics, and earnings management," Journal of Accounting and Economics, Elsevier, vol. 33(3), pages 375-400, August.
    3. Ruch, George W. & Taylor, Gary, 2015. "Accounting conservatism: A review of the literature," Journal of Accounting Literature, Elsevier, vol. 34(C), pages 17-38.
    4. Yijiang Zhao & Kung H. Chen, 2008. "The Influence of Takeover Protection on Earnings Management," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(3-4), pages 347-375.
    5. Michael C. Jensen, 2010. "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 43-58, January.
    6. Wendy Beekes & Peter Pope & Steven Young, 2004. "The Link Between Earnings Timeliness, Earnings Conservatism and Board Composition: evidence from the UK," Corporate Governance: An International Review, Wiley Blackwell, vol. 12(1), pages 47-59, January.
    7. Demetris Christodoulou & Le Ma & Andrey Vasnev, 2018. "Inference†in†residuals as an Estimation Method for Earnings Management," Abacus, Accounting Foundation, University of Sydney, vol. 54(2), pages 154-180, June.
    8. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
    9. Daniel A. Cohen & Aiyesha Dey & Thomas z. Lys, 2013. "Corporate Governance Reform and Executive Incentives: Implications for Investments and Risk Taking," Contemporary Accounting Research, John Wiley & Sons, vol. 30(4), pages 1296-1332, December.
    10. Ahmed, Anwer S., 1994. "Accounting earnings and future economic rents : An empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 17(3), pages 377-400, May.
    11. Juan Manuel García Lara & Beatriz García Osma & Fernando Penalva, 2009. "The Economic Determinants of Conditional Conservatism," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(3‐4), pages 336-372, April.
    12. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance and Equity Prices," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 107-156.
    13. Basu, Sudipta, 1997. "The conservatism principle and the asymmetric timeliness of earnings," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 3-37, December.
    14. Reinhard Schunck, 2013. "Within and between estimates in random-effects models: Advantages and drawbacks of correlated random effects and hybrid models," Stata Journal, StataCorp LP, vol. 13(1), pages 65-76, March.
    15. Christopher S. Armstrong & Alan D. Jagolinzer & David F. Larcker, 2010. "Chief Executive Officer Equity Incentives and Accounting Irregularities," Journal of Accounting Research, Wiley Blackwell, vol. 48(2), pages 225-271, May.
    16. Karthik Balakrishnan & Ross Watts & Luo Zuo, 2016. "The Effect of Accounting Conservatism on Corporate Investment during the Global Financial Crisis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 43(5-6), pages 513-542, May.
    17. Armstrong, Christopher S. & Larcker, David F. & Ormazabal, Gaizka & Taylor, Daniel J., 2013. "The relation between equity incentives and misreporting: The role of risk-taking incentives," Journal of Financial Economics, Elsevier, vol. 109(2), pages 327-350.
    18. David Scharfstein, 1988. "The Disciplinary Role of Takeovers," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(2), pages 185-199.
    19. Raheja, Charu G., 2005. "Determinants of Board Size and Composition: A Theory of Corporate Boards," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(2), pages 283-306, June.
    20. Ahmed, Anwer S. & Duellman, Scott, 2007. "Accounting conservatism and board of director characteristics: An empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 43(2-3), pages 411-437, July.
    21. Givoly, Dan & Hayn, Carla, 2000. "The changing time-series properties of earnings, cash flows and accruals: Has financial reporting become more conservative?," Journal of Accounting and Economics, Elsevier, vol. 29(3), pages 287-320, June.
    22. Akinobu Shuto & Tomomi Takada, 2010. "Managerial Ownership and Accounting Conservatism in Japan: A Test of Management Entrenchment Effect," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(7‐8), pages 815-840, July.
    23. Juan Manuel Garcia Lara & Beatriz Garcia Osma & Fernando Penalva, 2007. "Board of Directors' Characteristics and Conditional Accounting Conservatism: Spanish Evidence," European Accounting Review, Taylor & Francis Journals, vol. 16(4), pages 727-755.
    24. Wei Chen & Paul Hribar & Samuel Melessa, 2018. "Incorrect Inferences When Using Residuals as Dependent Variables," Journal of Accounting Research, Wiley Blackwell, vol. 56(3), pages 751-796, June.
    25. Akinobu Shuto & Tomomi Takada, 2010. "Managerial Ownership and Accounting Conservatism in Japan: A Test of Management Entrenchment Effect," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(7-8), pages 815-840.
    26. Yijiang Zhao & Kung H. Chen, 2008. "The Influence of Takeover Protection on Earnings Management," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(3‐4), pages 347-375, April.
    27. Cong Wang & Fei Xie & Xiangang Xin, 2018. "CEO Inside Debt and Accounting Conservatism," Contemporary Accounting Research, John Wiley & Sons, vol. 35(4), pages 2131-2159, December.
    28. John Core & Wayne Guay, 2002. "Estimating the Value of Employee Stock Option Portfolios and Their Sensitivities to Price and Volatility," Journal of Accounting Research, Wiley Blackwell, vol. 40(3), pages 613-630, June.
    29. Buddelmeyer, Hielke & Jensen, Paul H. & Oguzoglu, Umut & Webster, Elizabeth, 2008. "Fixed Effects Bias in Panel Data Estimators," IZA Discussion Papers 3487, Institute of Labor Economics (IZA).
    30. Thomas H. Noe & Michael J. Rebello, 2012. "Optimal Corporate Governance and Compensation in a Dynamic World," Review of Financial Studies, Society for Financial Studies, vol. 25(2), pages 480-521.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sudipta Basu & Eunju (Ivy) Lee, 2022. "Antecedents of and outcomes after finance committee use," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(3-4), pages 491-535, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Liu, Sun, 2019. "The impact of ownership structure on conditional and unconditional conservatism in China: Some new evidence," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 34(C), pages 49-68.
    2. Armstrong, Christopher S. & Guay, Wayne R. & Weber, Joseph P., 2010. "The role of information and financial reporting in corporate governance and debt contracting," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 179-234, December.
    3. Khalifa, Mariem & Trabelsi, Samir & Matoussi, Hamadi, 2022. "Leverage, R&D expenditures, and accounting conservatism: Evidence from technology firms," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 285-304.
    4. Amneh Alkurdi & Munther Al-Nimer & Mohammad Dabaghia, 2017. "Accounting Conservatism and Ownership Structure Effect: Evidence from Industrial and Financial Jordanian Listed Companies," International Journal of Economics and Financial Issues, Econjournals, vol. 7(2), pages 608-619.
    5. Ahmed, Anwer S. & Duellman, Scott, 2007. "Accounting conservatism and board of director characteristics: An empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 43(2-3), pages 411-437, July.
    6. Sudipta Basu & Yi Liang, 2019. "Director–Liability–Reduction Laws and Conditional Conservatism," Journal of Accounting Research, Wiley Blackwell, vol. 57(4), pages 889-917, September.
    7. Muhammad Bilal Saeed & Syed Kashif Saeed, 2018. "Corporate Governance and Accounting Conservatism: Moderating role of Audit Quality and Disclosure Quality," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 10(2), pages 123-150, June.
    8. Feng Chen & Qingyuan Li & Li Xu, 2021. "Universal demand laws and the monitoring demand for accounting conservatism," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(7-8), pages 1246-1289, July.
    9. Katsuhiko Muramiya & Tomomi Takada, 2020. "How cross‐shareholding influences financial reporting: Evidence from Japan," Corporate Governance: An International Review, Wiley Blackwell, vol. 28(5), pages 309-326, September.
    10. Haider, Imran & Singh, Harjinder & Sultana, Nigar, 2021. "Managerial ability and accounting conservatism," Journal of Contemporary Accounting and Economics, Elsevier, vol. 17(1).
    11. Takuya Iwasaki & Shota Otomasa & Atsushi Shiiba & Akinobu Shuto, 2012. "The role of accounting conservatism in executive compensation contracts (Forthcoming in Journal of Business Finance and Accounting)," CARF F-Series CARF-F-370, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo, revised Jul 2018.
    12. Dea¡¯a Al-Deen Omar Al-Sraheen & Faudziah Hanim Fadzil & Syed Soffian Bin Syed Ismail, 2014. "Does Corporate Governance Matter? Evidence from Accounting Conservatism Practices among Jordanian Listed Companies," International Journal of Learning and Development, Macrothink Institute, vol. 4(4), pages 64-80, December.
    13. Tamer Elshandidy & Ahmed Hassanein, 2014. "Do IFRS and board of directors' independence affect accounting conservatism?," Applied Financial Economics, Taylor & Francis Journals, vol. 24(16), pages 1091-1102, August.
    14. Carlo D'Augusta & Matthew D. DeAngelis, 2020. "Does Accounting Conservatism Discipline Qualitative Disclosure? Evidence From Tone Management in the MD&A," Contemporary Accounting Research, John Wiley & Sons, vol. 37(4), pages 2287-2318, December.
    15. Ha, Joohyung, 2019. "Agency costs of free cash flow and conditional conservatism," Advances in accounting, Elsevier, vol. 46(C), pages 1-1.
    16. Ling Lin, 2016. "Institutional ownership composition and accounting conservatism," Review of Quantitative Finance and Accounting, Springer, vol. 46(2), pages 359-385, February.
    17. Dariush Foroghi & Hadi Amiri & Zahra Nokhbeh Fallah, 2013. "Corporate Governance and Conservatism," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(4), pages 61-71, October.
    18. Dechow, Patricia & Ge, Weili & Schrand, Catherine, 2010. "Understanding earnings quality: A review of the proxies, their determinants and their consequences," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 344-401, December.
    19. Jo-Ting Wei, 2021. "Financial Reporting Material Misstatements, Earnings Conservatism and Managerial Replacement Decisions," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 14(1), pages 7-21, June.
    20. Akinobu Shuto & Tomomi Takada, 2010. "Managerial Ownership and Accounting Conservatism in Japan: A Test of Management Entrenchment Effect," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(7‐8), pages 815-840, July.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jbfnac:v:48:y:2021:i:3-4:p:463-497. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.