Innate and discretionary accruals quality and corporate governance

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Kent, Pamela
Routledge, James
Stewart, Jenny
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Robert Faff

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2010
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Abstract

This paper extends previous research on the association between corporate governance mechanisms and accruals quality. We derive measures of the discretionary and innate components of accruals quality and regress them against corporate governance characteristics. For discretionary accruals, we find use of a Big 4 audit firm and a larger audit committee as the primary governance mechanisms associated with higher accruals quality. For innate accruals quality, we find that higher quality is associated with an independent board of directors, a larger, more independent and more active audit committee, and use of a Big 4 audit firm. Our findings suggest a stronger relation between sound governance mechanisms and innate accruals quality than discretionary accruals quality.

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Accounting and Finance

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50

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© 2009 Blackwell Publishing. This is the author-manuscript version of the paper. Reproduced in accordance with the copyright policy of the publisher.The definitive version is available at www.interscience.wiley.com

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Applied economics

Accounting, auditing and accountability

Financial accounting

Banking, finance and investment

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