We thank an anonymous referee, Alan Goodacre, Ioannis Tsalavoutas, Mahmud Hossain, Peter Clarkson and seminar participants at Deakin University, La Trobe University, Monash University, University of Stirling and University of Ulster for useful comments. Financial assistance from the Faculty of Law and Management, La Trobe University, is acknowledged.
Accounting conservatism and voluntary corporate governance mechanisms by Australian firms
Article first published online: 3 APR 2011
© 2011 The Authors. Accounting and Finance © 2011 AFAANZ
Accounting & Finance
Volume 52, Issue 3, pages 631–662, September 2012
How to Cite
Ahmed, K. and Henry, D. (2012), Accounting conservatism and voluntary corporate governance mechanisms by Australian firms. Accounting & Finance, 52: 631–662. doi: 10.1111/j.1467-629X.2011.00410.x
- Issue published online: 7 SEP 2012
- Article first published online: 3 APR 2011
- Received 10 December 2009; accepted 2 March 2011 by Robert Faff (Editor).
- Conditional conservatism;
- Unconditional conservatism;
- Corporate governance;
- Board structure;
- Audit committee
This study examines the relationship between voluntary adoption of selected corporate governance mechanisms and accounting conservatism for a sample of firms listed on the Australian Securities Exchange (ASX) over the 11-year period prior to the promulgation of the ASX Corporate Governance Council Good Governance Principles and Best Practice Recommendations in 2003. Using four accounting and market-based accounting conservatism measures, our results provide evidence of both conditional and unconditional conservatism in accounting reporting for Australian firms. We find that voluntary audit committee formation, increasing board independence and decreasing board size are positively associated with unconditional accounting conservatism and negatively related to the degree of conditional conservatism. Our results support the contention that firms voluntarily adopting perceived best practice corporate governance mechanisms employ unconditional accounting conservatism as a complimentary agency control device and are consistent with the observed negative association between the unconditional and conditional forms of accounting conservatism practice.