The Relationship Between Board Characteristics And Accounting Conservatism

Accounting Conservatism is one of the important principles in accounting standards in world's major nationals. With the development of the modern theory of the firm, more and more scholars have tested that accounting conservatism is also an effective mechanism to resolve agency conflict, there is a close relationship between board characteristics and accounting conservatism. In China, previous studies all used the Basu's measurement methods to test the relationship between board characteristics and accounting conservatism. But many foreign scholars believe that this method has defects and advocate to use multiple models simultaneously. This article's tests firstly utilize three conservatism measures:a net assets-based measure, an accrual-based measure and a measure of accumulate improved asymmetric timeliness of earnings. In addition, this article analyzes the applicability for the three measures from the empirical results. The empirical results from multiple linear regression document that:(1) a positive relation between CEO/chair separation and conservatism, (2) a positive relation between the percentage of independent directors on the board and conservatism, (3) a positive relation between director ownership and conservatism, and (4) a not clear relationship between board size and conservatism. According to results of the research, it is not applicable to use net assets-based measure and measure of accumulate improved asymmetric timeliness of earnings when our stock market is not mature. In the case of instability and ineffective stock market, accrual-based measurement is more appropriate to measure accounting conservatism.