Corporate governance report compliance rate and accounting conservatism: New evidence from Korea

  • 182 Views
  • 76 Downloads

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License

This study investigates the relationship between the corporate governance report (CGR) compliance rate and a company’s accounting conservatism, utilizing the CGR compliance rate as a novel method to evaluate the effectiveness of corporate governance practices. Given the challenges of applying global indices to measure corporate governance in the Korean market, this study focuses on the CGR compliance rate as a key indicator. Utilizing the ordinary least squares (OLS) regression model, specifically the Ball and Shivakumar (2005) model widely employed in previous studies to assess accounting conservatism, this paper conducts empirical analyses based on 784 observations from Korean listed firms between 2018 and 2021. The main analysis reveals a positive association between the CGR compliance rates (coef = –2.416, p-value < 0.01) and accounting conservatism. A fixed-effect model and a propensity score matching (PSM) model also show a positive association between the CGR compliance rates, respectively (coef = –2.507, p-value < 0.01; coef = –3.118, p-value < 0.1) and accounting conservatism. This study proves that firms with high CGR compliance rates tend to promptly recognize financial losses in financial reporting, thereby safeguarding investors. This suggests that investors should consider the CGR compliance rates when evaluating potential investments. Overall, these findings contribute to validating the CGR compliance rates as a valuable proxy for assessing corporate governance practices in Korean firms.

view full abstract hide full abstract
    • Table 1. Descriptive statistics
    • Table 2. Correlation matrix
    • Table 3. CGR compliance rate and accounting conservatism
    • Table 4. Cross-sectional analyses
    • Panel A. The role of large shareholders and foreign ownership
    • Panel B. The role of board and auditor size
    • Table 5. Firm fixed effects
    • Table 6. Propensity score matching
    • Table 7. Additional tests controlling the audit fee and hour
    • Table A1. 15 corporate governance key indices
    • Table B1. Variable definitions
    • Conceptualization
      Hyoung Seok Choo, Sun-ae Cho, Jeongeun Emilia Lee
    • Data curation
      Hyoung Seok Choo, Jeongeun Emilia Lee
    • Formal Analysis
      Hyoung Seok Choo, Jeongeun Emilia Lee
    • Investigation
      Hyoung Seok Choo, Sun-ae Cho
    • Methodology
      Hyoung Seok Choo, Sun-ae Cho, Jeongeun Emilia Lee
    • Project administration
      Hyoung Seok Choo, Sun-ae Cho
    • Software
      Hyoung Seok Choo, Sun-ae Cho, Jeongeun Emilia Lee
    • Writing – review & editing
      Hyoung Seok Choo, Sun-ae Cho, Jeongeun Emilia Lee
    • Supervision
      Sun-ae Cho
    • Writing – original draft
      Sun-ae Cho
    • Visualization
      Jeongeun Emilia Lee