Accountability and value enhancement roles of corporate governance


  • We thank Allen Craswell for providing access to the ‘Who Audits Australia?’ database. We acknowledge helpful comments from Helen Adams, Shuping Chen, Peter Clarkson, Nabil Elias, Frank Hodge, Dawn Matsumoto, Sarah McVay, Shiva Rajgopal, Terry Shevlin, D. Shores, Stephen Taylor, two anonymous reviewers and participants at the AFAANZ Annual Conference, AAA Annual Meeting, University of New South Wales and the University of Washington. Able research assistance of Courtney Chugg and programming advice from Lew Thorson are acknowledged. S. K. Laplante acknowledges financial support from Deloitte and Touche. Ping-Sheng Koh was with the University of Queensland when this project commenced.

  • doi: 10.1111/j.1467-629x.2006.00207.x


We examine the twin roles of accountability and value enhancement of corporate governance in the context of financial reporting. We investigate the accountability role by examining the association between governance structures and abnormal accruals, and the value enhancement role by investigating the association between abnormal accruals explained by governance structures and future performance. We differentiate between governance mechanisms that have direct roles in the financial reporting process (audit related) from mechanisms that have indirect roles (board related). We find that independent and active audit committees and independent boards are important governance attributes for financial reporting. We show that both audit-related and board-related governance structures are value enhancing.