Accounting conservatism corporate governance and firm performance an empirical study in Indian context

Abstract

The increasing number of accounting scandals mitigates the trust of investors in financial statements. In order to maintain the readability of financial statements the practitioners, regulators, and academicians have worked to develop better accounting practices. The need of users of financial statements to remain informed obliges them to set out such guidelines or to set up such mechanisms that will support conservatism. Hence, the purpose of the study was to examine the impact of the board of directors characteristics and audit committee characteristics on the adoption of accounting conservatism. In addition to this, the moderating effect of ownership structure on the relationship between accounting conservatism and the corporate governance attributes was investigated. Alternatively, the relationship between the conservatism and the leverage as well as the impact of the conservative accounting on the corporate performance indicators was analysed. Data was obtained from SandP BSE 500 index from 2010-2018. For obtaining the data on the variables, BSE newlineWebsite, and annual reports of sample companies, the Prowess IQ database was referred. The research has employed Panel data methodology. Overall, the findings of the relationship between accounting conservatism and corporate governance mechanism have indicated that both the features of the board of directors and audit committee are expected to have an impact on accounting conservatism. Moreover, the results have indicated that accounting conservatism is positively related to leverage, whereas the firm value is negatively related to the accounting conservatism according to accrual-based conservatism as well as asymmetric timeliness conservatism. The results have shown that conservatism is positively related to the firm performance, indicating that companies with the higher levels of conservatism have the higher level of firm performance. newline newline