Accounting discretion, corporate governance, and firm performance

• 成果类型: Article; Proceedings Paper
• 署名作者: Bowen, Robert M.; Rajgopal, Shivaram; Venkatachalam, Mohan
• 署名单位: University of Washington; University of Washington Seattle; Duke University
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1506/car.25.2.3
• 发表日期: 2008
• 页码: 351-+
• 关键词: earnings management; bonus plans; operating performance; MANAGERIAL OWNERSHIP; Cash flows; BOARD; disclosure; INVESTMENT; accruals; industry

摘要

We investigate whether accounting discretion is (a) abused by opportunistic managers who exploit lax governance structures or (b) used by managers in a manner consistent with efficient contracting and shareholder value-maximization. Prior research documents an association between accounting discretion and poor governance quality and concludes that such evidence is consistent With abuse of the latitude-allowed by accounting rules. We argue that this interpretation may be premature because, if much association is indeed evidence of opportunism, we ought to observe subsequent poor performance, ceteris paribus. We conduct Our analysis in two stages. In the first stage, we extend the prior literature and again find a link between poor governance and managers' accounting discretion. However, in the second stage we fail to detect a negative association between accounting discretion attributable to poor governance and subsequent firm performance. This suggests that, on average, in our relatively large sample, managers do not abuse accounting discretion at the expense of firms' shareholders. Rather, we find some evidence that discretion due to poor governance is positively associated with future operating cash flows and ROA, which suggests that shareholders may benefit from earnings management, perhaps because it signals future performance.