Corporate Governance Attributes and Accounting Conservatism: Evidence from China

Abstract

The paper explores the association between corporate governance attributes and the extent of accounting conservatism apparent in Chinese listed companies’ financial reporting. The findings demonstrate that significant positive association exists between board independence, board size and accounting conservatism in Chinese information technology companies. Conversely, CEO duality, management shareholding and the shareholding ratio of the largest shareholder significantly negatively correlated with accounting conservatism. To the best of the author’s knowledge, this is one of the first empirical papers revealing the evidence on the relationship between corporate governance attributes and accounting conservatism in China. Overall, the author’s findings match up with the assertion that accounting conservatism assists directors in reducing agency costs of firms.

The role of accounting regulation on good news recognition and conditional conservatism: evidence from China’s 2006 accounting regulation

“…However, they observe that CC is not significantly changed in both periods. Considering the impact of convergence with IFRS and corporate governance on AC in China, Pasko et al (2021) find a decline in AC after China’s convergence with IFRS. In addition, they document a negative relationship between AC and some corporate governance attributes.…”

“…Specifically, some studies document a positive relationship between China's 2006 AR and CC (Liu et al, 2016;Barhamzaid, 2019). On the other hand, other studies document a negative relationship between the two variables (Hou et al, 2014;Bradford et al, 2017;Li et al, 2018;Cheng, 2019;Pasko et al, 2021). Meanwhile, Isaboke and Chen (2019) document no significant effect of China's 2006 AR on CC.…”

“…Notably, some researchers argue that China’s 2006 AR widely adopts fair value accounting (FVA) (Hou et al , 2014; Bradford et al , 2017; Li et al , 2018; Cheng, 2019; Pasko et al , 2021). Accordingly, they suggest that GNs recognition is expected to be increased as FVA recognizes gains and losses in a timely fashion (Barker and McGeachin, 2015).…”

“…In this concern, some scholars document a positive relationship between China’s 2006 AR and CC (Liu et al , 2016; Barhamzaid, 2019). On the other hand, other researchers document an opposite view (Hou et al , 2014; Bradford et al , 2017; Li et al , 2018; Cheng, 2019; Pasko et al , 2021). In the meanwhile, Isaboke and Chen (2019) document no connection between the two variables.…”

Corporate governance report compliance rate and accounting conservatism: New evidence from Korea

“…Theoretically, the core tenet of good financial reporting revolves around providing impartial and precise information. Nonetheless, many studies demonstrate that conservative accounting yields enhanced financial information for stakeholders (Watts, 2003(Watts, , 2006Ahmed & Duellman, 2007;Nguyen et al, 2020;Oleh, 2021). Accounting conservatism is the propensity to promptly reflect negative news compared to positive news (Basu, 1997), thereby reducing anticipated losses for investors operating under asymmetrical loss functions.…”