Articlebronze2009

Innate and discretionary accruals quality and corporate governance

Pamela Fae Kent · James Routledge · Jenny Stewart

203 citations0/0 files storedAccounting and Finance

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Auditing, Earnings Management, Governance Corporate Finance and Governance Corporate Governance and Financial Management

Abstract

Abstract This paper extends previous research on the association between corporate governance mechanisms and accruals quality. We derive measures of the discretionary and innate components of accruals quality and regress them against corporate governance characteristics. For discretionary accruals, we find use of a Big 4 audit firm and a larger audit committee as the primary governance mechanisms associated with higher accruals quality. For innate accruals quality, we find that higher quality is associated with an independent board of directors, a larger, more independent and more active audit committee, and use of a Big 4 audit firm. Our findings suggest a stronger relation between sound governance mechanisms and innate accruals quality than discretionary accruals quality.

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References

1983Separation of Ownership and Control 1993The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems 1991Earnings Management During Import Relief Investigations 1995Detecting Earnings Management.2002The Quality of Accruals and Earnings: The Role of Accrual Estimation Errors 1983Agency Problems and Residual Claims 2002Audit committee, board of director characteristics, and earnings management 1996Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC*

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