Board of Directors' Characteristics and Conditional Accounting Conservatism: Spanish Evidence

Abstract

Using a sample of Spanish listed firms for the period 1997 2002 we find that firms where the CEO has a 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 six (eight) 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 (Journal of Accounting and Economics, 24, pp. 3 37, 1997) and Ball and Shivakumar (Journal of Accounting and Economics, 39, pp. 83 128, 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.

The Economic Determinants of Conditional Conservatism

“…Investors will therefore require strong governance mechanisms that can enforce conservative accounting choices. Recent evidence in Beekes, Pope and Young (2004), Ahmed and Duellman (2007) and García Lara, García Osma and Penalva (2007 and 2009) confirms that stronger corporate governance is associated with increased conditional conservatism.…”

La composición del consejo de administración y la estructura accionaria como factores explicativos de la transparencia en el gobierno corporativo en Latinoamérica: evidencia en empresas cotizadas de Argentina, Brasil, Chile y México

“…Así también, este tema ha despertado un gran interés en el entorno internacional, y surge como respuesta a la demanda de una mayor transparencia corporativa en el mercado. Un enfoque importante de investigación enfatiza en la influencia que el GC puede ejercer sobre la transparencia corporativa (García-Lara, García-Osma y Penalva, 2007). Desde un contexto institucional, el GC crea una estructura de diá-logo entre la empresa y sus stakeholders 1 , con el objetivo de que estos obtengan un entendimiento de las metas estratégicas y operacionales de la compañía (Chan y Cheung, 2011).…”

Research and development accounting treatment: effects of CEO characteristics and corporate governance mechanisms

“…So, the R&D capitalization is likely to be decreased in the cases of CEO duality of roles. Also, prior literature confirms the negative relationship between the CEO duality of roles and the quality of accounting information (Lara et al 2007, Firth et al 2007). Seen the informativeness nature of R&D capitalization (Chambers et al 2003, Healy et al 2002, Zhao 2002, Oswald 2008, it is expected a negative relationship between the R&D capitalization and the CEO duality of roles.…”