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Are corporate governance attributes associated with accounting conservatism?


  • This article is based on my PhD thesis completed at the University of New South Wales. I am grateful to Steve Taylor, my supervisor and also Graeme Harrison for constructive feedback. The article has also benefitted from comments by Neil Fargher, Colin Ferguson, Keitha Dunston, Ray DaSilva Rosa, Jason Mitchell, Ed Watts, an anonymous reviewer, Robert Faff (the editor) and research seminar participants at the 2007 University of Technology Sydney Accounting Research Summer School, Macquarie University and the University of New South Wales. I am also grateful to Andrew Ferguson for providing some of the governance data. I acknowledge financial support from the Accounting and Finance Department at Macquarie University and the contributions of the Securities Industry Research Centre of Asia-Pacific (SIRCA) on behalf of ASX and Aspect Financial for providing financial statement data.


This article investigates the association between the board of directors, the audit committee and the external auditor (as well as an aggregate governance index) and the extent of conservatism evident in Australian firms’ financial reporting. Overall, the results provide only weak evidence that firms with certain governance characteristics report more conservatively. Evidence of any such link is restricted to measures of board composition and leadership, and even then the results are sensitive to the method used to measure the extent of conservatism in financial reporting.