IDEAS home Printed from https://ideas.repec.org/a/spr/snbeco/v3y2023i6d10.1007_s43546-023-00476-7.html
   My bibliography  Save this article

The tenure of directors and value relevance of accounting information

Author

Listed:
  • Yuni Pristiwati Noer Widianingsih

    (STIE Swasta Mandiri Surakarta
    Universitas Sebelas Maret)

  • Doddy Setiawan

    (Universitas Sebelas Maret)

Abstract

This study aims to determine the effect of director tenure on the relevance of accounting information by considering that share ownership is generally concentrated in Indonesia. Concentrated share ownership has the potential to cause agency conflicts between controlling and minority shareholders; therefore, corporate governance mechanisms must be controlled. The corporate governance structure in Indonesia is based on a two-tier system, where the highest power lies with the General Meeting of Shareholders (GMS). The holdings of the GMS are expected to be used as an entrenchment mechanism to determine the tenure of directors and commissioners. A longer tenure will accumulate the experience and expertise of the board of directors in controlling and considering who will be taken. Therefore, this study was conducted to determine whether director tenure can increase the value relevance of accounting information. This study was conducted using three value relevance measurements: earnings and book value information, earnings, and cash flow. The test results show that tenure can increase the relevance of the value of information. Testing was also carried out by classifying the tenure of directors as less than five years or more than five years. The test results consistently show that a longer tenure of directors has a greater effect on increasing the relevance of information value.

Suggested Citation

  • Yuni Pristiwati Noer Widianingsih & Doddy Setiawan, 2023. "The tenure of directors and value relevance of accounting information," SN Business & Economics, Springer, vol. 3(6), pages 1-18, June.
    • Handle: RePEc:spr:snbeco:v:3:y:2023:i:6:d:10.1007_s43546-023-00476-7
    DOI: 10.1007/s43546-023-00476-7
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s43546-023-00476-7
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s43546-023-00476-7?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
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Hui Liang James & Hongxia Wang, 2021. "Independent director tenure and dividends," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(5-6), pages 1057-1091, May.
    2. Easton, Pd & Harris, Ts, 1991. "Earnings As An Explanatory Variable For Returns," Journal of Accounting Research, Wiley Blackwell, vol. 29(1), pages 19-36.
    3. Filip, Andrei & Raffournier, Bernard, 2010. "The value relevance of earnings in a transition economy: The case of Romania," The International Journal of Accounting, Elsevier, vol. 45(1), pages 77-103, March.
    4. Wael Mostafa, 2016. "The value relevance of earnings, cash flows and book values in Egypt," Management Research Review, Emerald Group Publishing Limited, vol. 39(12), pages 1752-1778, December.
    5. K. J. Martijn Cremers & Vinay B. Nair, 2005. "Governance Mechanisms and Equity Prices," Journal of Finance, American Finance Association, vol. 60(6), pages 2859-2894, December.
    6. Ely, K & Waymire, G, 1999. "Accounting standard-setting organizations and earnings relevance: Longitudinal evidence from NYSE common stocks, 1927-93," Journal of Accounting Research, Wiley Blackwell, vol. 37(2), pages 293-317.
    7. Fan, Joseph P. H. & Wong, T. J., 2002. "Corporate ownership structure and the informativeness of accounting earnings in East Asia," Journal of Accounting and Economics, Elsevier, vol. 33(3), pages 401-425, August.
    8. John E. Core & Wayne R. Guay & Tjomme O. Rusticus, 2006. "Does Weak Governance Cause Weak Stock Returns? An Examination of Firm Operating Performance and Investors' Expectations," Journal of Finance, American Finance Association, vol. 61(2), pages 655-687, April.
    9. Armstrong, Christopher S. & Core, John E. & Guay, Wayne R., 2014. "Do independent directors cause improvements in firm transparency?," Journal of Financial Economics, Elsevier, vol. 113(3), pages 383-403.
    10. Ivo Hristov & Antonio Chirico & Francesco Ranalli, 2022. "Corporate strategies oriented towards sustainable governance: advantages, managerial practices and main challenges," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 26(1), pages 75-97, March.
    11. Collins, Daniel W. & Maydew, Edward L. & Weiss, Ira S., 1997. "Changes in the value-relevance of earnings and book values over the past forty years," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 39-67, December.
    12. Scott Pirie & Malcolm Smith, 2008. "Stock prices and accounting information: evidence from Malaysia," Asian Review of Accounting, Emerald Group Publishing Limited, vol. 16(2), pages 109-133, July.
    13. Al-Hares, Osama M. & AbuGhazaleh, Naser M. & Haddad, Ayman E., 2012. "Value relevance of earnings, book value and dividends in an emerging capital market: Kuwait evidence," Global Finance Journal, Elsevier, vol. 23(3), pages 221-234.
    14. Yves Bozec & Claude Laurin, 2008. "Large Shareholder Entrenchment and Performance: Empirical Evidence from Canada," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(1-2), pages 25-49.
    15. James, Hui Liang & Ngo, Thanh & Wang, Hongxia, 2021. "Independent director tenure and corporate transparency," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    16. Yanthi Hutagaol‐Martowidjojo & Aljosa Valentincic & Dezie L. Warganegara, 2019. "Earnings Quality and Market Values of Indonesian Listed Firms," Australian Accounting Review, CPA Australia, vol. 29(1), pages 95-111, March.
    17. Ying Dou & Sidharth Sahgal & Emma Jincheng Zhang, 2015. "Should Independent Directors Have Term Limits? The Role of Experience in Corporate Governance," Financial Management, Financial Management Association International, vol. 44(3), pages 583-621, September.
    18. Mishari M. Alfraih & Faisal S. Alanezi & Khalid A. Alanzi, 2015. "Do the characteristics of the board of directors affect the value relevance of accounting information?," International Journal of Accounting and Finance, Inderscience Enterprises Ltd, vol. 5(2), pages 172-187.
    19. Julan Du & Yi Dai, 2005. "Ultimate Corporate Ownership Structures and Capital Structures: evidence from East Asian economies," Corporate Governance: An International Review, Wiley Blackwell, vol. 13(1), pages 60-71, January.
    20. Francis, J & Schipper, K, 1999. "Have financial statements lost their relevance?," Journal of Accounting Research, Wiley Blackwell, vol. 37(2), pages 319-352.
    21. Nikos Vafeas, 2003. "Length of Board Tenure and Outside Director Independence," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(7‐8), pages 1043-1064, September.
    22. Wael Mostafa, 2016. "The value relevance of earnings, cash flows and book values in Egypt," Management Research Review, Emerald Group Publishing Limited, vol. 39(12), pages 1752-1778, December.
    23. Nikos Vafeas, 2003. "Length of Board Tenure and Outside Director Independence," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30, pages 1043-1064.
    24. Sami, Heibatollah & Zhou, Haiyan, 2004. "A comparison of value relevance of accounting information in different segments of the Chinese stock market," The International Journal of Accounting, Elsevier, vol. 39(4), pages 403-427.
    25. Yves Bozec & Claude Laurin, 2008. "Large Shareholder Entrenchment and Performance: Empirical Evidence from Canada," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(1‐2), pages 25-49, January.
    26. Hesham I. Almujamed & Mishari M. Alfraih, 2020. "Corporate governance and value relevance of accounting information," International Journal of Ethics and Systems, Emerald Group Publishing Limited, vol. 36(2), pages 249-262, April.
    27. Alessandro Mechelli & Riccardo Cimini, 2014. "Is Comprehensive Income Value Relevant and Does Location Matter? A European Study," Accounting in Europe, Taylor & Francis Journals, vol. 11(1), pages 59-87, June.
    28. Lev, B & Zarowin, P, 1999. "The boundaries of financial reporting and how to extend them," Journal of Accounting Research, Wiley Blackwell, vol. 37(2), pages 353-385.
    29. Ahsan Habib & Istiaq Azim, 2008. "Corporate governance and the value‐relevance of accounting information," Accounting Research Journal, Emerald Group Publishing Limited, vol. 21(2), pages 167-194, September.
    Full references (including those not matched with items on IDEAS)

    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. Maigoshi, Zaharaddeen Salisu & Latif, Rohaida Abdul & Kamardin, Hasnah, 2018. "Change in value-relevance of disclosed RPT across accounting regimes: Evidence from Malaysia," Research in International Business and Finance, Elsevier, vol. 44(C), pages 422-433.
    2. Jamal Barzegari Khanagha, 2011. "Value Relevance of Accounting Information in the United Arab Emirates," International Journal of Economics and Financial Issues, Econjournals, vol. 1(2), pages 33-45, June.
    3. Joseph P.H. Fan & Feng Guan & Zengquan Li & Yong George Yang, 2014. "Relationship Networks and Earnings Informativeness: Evidence from Corruption Cases," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(7-8), pages 831-866, September.
    4. Farzana Haque Boby & Mohammed Sahed Hosen, 2023. "Association of Accounting Information and Stock Price of Non-Banking Financial Institutions of Bangladesh," International Journal of Science and Business, IJSAB International, vol. 26(1), pages 1-09.
    5. Gjerde, Øystein & Knivsflå, Kjell & Sættem, Frode, 2011. "The value relevance of financial reporting in Norway 1965-2004," Scandinavian Journal of Management, Elsevier, vol. 27(1), pages 113-128, March.
    6. Meena Bhatia & Mwila J. Mulenga, 2019. "Value Relevance of Accounting Information: A Review of Empirical Evidence Across Continents," Jindal Journal of Business Research, , vol. 8(2), pages 179-193, December.
    7. Veith, Stefan & Werner, Jörg R., 2014. "Comparative Value Relevance Studies: Country Differences Versus Specification Effects," The International Journal of Accounting, Elsevier, vol. 49(3), pages 301-330.
    8. Lam, Kevin C.K. & Sami, Heibatollah & Zhou, Haiyan, 2013. "Changes in the value relevance of accounting information over time: Evidence from the emerging market of China," Journal of Contemporary Accounting and Economics, Elsevier, vol. 9(2), pages 123-135.
    9. David S. Jenkins & Gregory D. Kane & Uma Velury, 2009. "Earnings Conservatism and Value Relevance Across the Business Cycle," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(9-10), pages 1041-1058.
    10. Abdulrahman Alomair & Alan Farley & Helen Hong Yang, 2022. "The impact of IFRS adoption on the value relevance of accounting information in Saudi Arabia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(2), pages 2839-2878, June.
    11. Koji Ota, 2010. "The Value Relevance of Management Forecasts and Their Impact on Analysts' Forecasts: Empirical Evidence From Japan," Abacus, Accounting Foundation, University of Sydney, vol. 46(1), pages 28-59, March.
    12. Dan Givoly & Carla Hayn & Sharon Katz, 2017. "The changing relevance of accounting information to debt holders over time," Review of Accounting Studies, Springer, vol. 22(1), pages 64-108, March.
    13. Schaberl, Philipp D., 2016. "Beyond accounting and back: An empirical examination of the relative relevance of earnings and “other” information," Advances in accounting, Elsevier, vol. 35(C), pages 98-113.
    14. Devalle, Alain & Magarini, Riccardo & Onali, Enrico, 2009. "Assessing the Value Relevance of Accounting Data After the Introduction of IFRS in Europe," MPRA Paper 56174, University Library of Munich, Germany, revised 08 Oct 2009.
    15. Igor Goncharov & Allan Hodgson, 2008. "Comprehensive Income In Europe: Valuation, Prediction And Conservative Issues," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 1(10), pages 1-1.
    16. Hamberg, Mattias & Beisland, Leif-Atle, 2014. "Changes in the value relevance of goodwill accounting following the adoption of IFRS 3," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 23(2), pages 59-73.
    17. Kumar, Gaurav, 2013. "Voluntary disclosures of intangibles information by U.S.-listed Asian companies," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 22(2), pages 109-118.
    18. Nazmul Hassan, & Hasan Md. Mahmood Ul Haque, 2017. "Role of Accounting Information in Assessing Stock Prices in Bangladesh," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 7(10), pages 18-25, October.
    19. Morris, John J. & Alam, Pervaiz, 2012. "Value relevance and the dot-com bubble of the 1990s," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 243-255.
    20. Gjerde, Øystein & Knivsflå, Kjell Henry & Sættem, Frode, 2005. "The Value Relevance of Financial Reporting on the Oslo Stock Exchange over the Period 1964-2003," Discussion Papers 2005/23, Norwegian School of Economics, Department of Business and Management Science.

    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:spr:snbeco:v:3:y:2023:i:6:d:10.1007_s43546-023-00476-7. 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.