The Relationship Between Corporate Governance And Earnings Conservatism

For a long time conservatism in accounting theory and accounting practices have played an important role in corporate governance, the impact on the stability of the existence of two different views. First complementary point of view-the more perfect the corporate governance of the higher stability; the other is the opposite of the view that corporate governance is robust and (substitutive relationship, the imperfections of its strong corporate governance, the higher the. This article by listed companies in China 2002-2009, empirical analysis, conclude that China's robust corporate governance impact on earnings.All accounting of the conservatism of empirical research, the most classic model is the use of anti Basu regression equation (reverse regression) structures of the surplus-stock returns relationship model. However, some studies have shown that defects Basu model. The most important question is, Basu model can not distinguish between the different companies the same cross-sectional differences and longitudinal changes in different periods of the company, not branch by year (firm-year) measure the degree of robustness. Basu model to solve problems, Khan and Watts created a new measure of the robustness of indicators-C-Score, and verify that the measure of the effectiveness of capital markets in the United States.This paper by Khan and Watts, test methods, validation of the C-Score in our fitness, Khan and Watts logic of authentication method to test C-Score is the same with the Basu coefficient to monotonic. Specifically, first of all samples per year C-Score values, divided into 10 groups from small to big, then these ten groups were Basu regression model, the estimated coefficients obtained in each group, the last in each group and the C-Score Basu coefficient of correlation. Concluded that C-Score in our economic circumstances are applicable. Then Wuchi (2009) the method of sound corporate governance and the relationship between the earnings of the specific approach is C_Score as the dependent variable, the corporate governance variables as independent variables, AGE (years after the company IPO), Cycle (investment Period), Volatility (market changes) and BigN (whether by large audit firm) as the control variable descriptive statistics and regression analysis, empirical results show that China's corporate governance and earnings stability are mutually complementary relationship, that is, if Relatively sound corporate governance, earnings conservatism will be high.