Does good corporate governance enhance accruals quality during financial crises?

Husam Aldamen, Keith Duncan

Research output: Contribution to journalArticleResearchpeer-review

3 Citations (Scopus)

Abstract

Purpose – The purpose of this study is to examine the efficacy of corporate governance systems in enhancing earnings quality during the recent global financial crisis (GFC). The literature provides insight into the corporate governance–accruals quality relationship during periods of relative financial stability. However, little is known about periods of unexpected financial shocks such as the GFC. Design/methodology/approach – The sample consists of 340 companies (1,020 firm years) listed on the ASX during 2007-2009. Factor analysis is used to compute corporate governance factors. Seemingly unrelated regression (SUR) is used to test the impact of pre-GFC corporate governance on accruals quality during the GFC. Findings – Consistent with prior research, the findings suggest that good corporate governance is positively related to accruals quality before the GFC. More importantly, the impact of good governance intensifies during the GFC, where the mitigating role of governance is arguably under pressure. Furthermore, during the GFC, good corporate governance also affects the level of asset impairment. Research limitations/implications – The study provides empirical evidence that the relationship between good corporate governance practices and accruals quality is amplified during the GFC. The results support the efforts of market regulators to improve the governance of companies and make them stronger during financial crises. Originality/value – The study is an important addition to corporate governance research because it tests governance dynamics in a unique crisis period and establishes that corporate governance structures are effective when most needed.

Original languageEnglish
Pages (from-to)434-457
Number of pages24
JournalManagerial Auditing Journal
Volume31
Issue number4-5
DOIs
Publication statusPublished - 2016

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Accruals quality
Corporate governance
Global financial crisis
Financial crisis
Governance
Earnings quality
Governance structure
Efficacy
Factor analysis
Seemingly unrelated regression
Impairment
Design methodology
Financial shocks
Empirical evidence
Financial stability
Assets
Relationship quality
Factors

Cite this

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title = "Does good corporate governance enhance accruals quality during financial crises?",
abstract = "Purpose – The purpose of this study is to examine the efficacy of corporate governance systems in enhancing earnings quality during the recent global financial crisis (GFC). The literature provides insight into the corporate governance–accruals quality relationship during periods of relative financial stability. However, little is known about periods of unexpected financial shocks such as the GFC. Design/methodology/approach – The sample consists of 340 companies (1,020 firm years) listed on the ASX during 2007-2009. Factor analysis is used to compute corporate governance factors. Seemingly unrelated regression (SUR) is used to test the impact of pre-GFC corporate governance on accruals quality during the GFC. Findings – Consistent with prior research, the findings suggest that good corporate governance is positively related to accruals quality before the GFC. More importantly, the impact of good governance intensifies during the GFC, where the mitigating role of governance is arguably under pressure. Furthermore, during the GFC, good corporate governance also affects the level of asset impairment. Research limitations/implications – The study provides empirical evidence that the relationship between good corporate governance practices and accruals quality is amplified during the GFC. The results support the efforts of market regulators to improve the governance of companies and make them stronger during financial crises. Originality/value – The study is an important addition to corporate governance research because it tests governance dynamics in a unique crisis period and establishes that corporate governance structures are effective when most needed.",
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Does good corporate governance enhance accruals quality during financial crises? / Aldamen, Husam; Duncan, Keith.

In: Managerial Auditing Journal, Vol. 31, No. 4-5, 2016, p. 434-457.

Research output: Contribution to journalArticleResearchpeer-review

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