Title
Corporate Governance and Accounting Conservatism: Empirical Evidence from Emerging Markets of South Asia
Abstract
This study investigates the relationship between corporate governance and accounting conservatism. Additionally, it investigates the moderating role of disclosure quality on the association between corporate governance and accounting conservatism. It employs panel data of three hundred rms from Bangladesh, India and Pakistan for the period from 2009 to 2015. Hundred rms are selected from each country on the basis of market capitalization as well as availability of data. Accounting Conservatism is measured via six measures. Corporate Governance is examined at two levels. First corporate governance mechanisms are examined. Afterwards, a composite score of rm’s governance is developed by employing principal component analysis and its impact is evaluated. The considered corporate governance mechanisms include audit committee independence, board activity, board independence, board size, CEO duality, CEO turnover, gender diversity on board, institutional shareholding, managerial shareholding and type of the auditor. The empirical results show that, among the considered governance measures only institutional shareholding and CEO duality have an impact on accounting conservatism in case of Bangladesh. In case of India, board activity and audit committee independence are found to be associated with accounting conservatism. In case of Pakistan, board activity, gender diversity on board and institutional ownership are found to be associated with accounting conservatism. A positive relationship is also found between composite score of rm governance and accounting conservatism along side the moderating role of disclosure quality in case of three considered data sets. Some additional analyses are also the part of this study that report mixed results. This ndings of this study offer an empirical evidence of existence of agency as well as positive accounting theory in three emerging economies of South Asia. It has implications for policy makers, regulators, analysts, researchers and other users of nancial statements especially in the context of emerging economies of South Asia that are the subject matter of this study.