TY - JOUR
T1 - Busy boards and accounting conservatism
T2 - An Australian perspective
AU - Le, Quyen
AU - Vafaei, Alireza
AU - Ahmed, Kamran
AU - Kutubi, Shawgat
N1 - Funding Information:
Funding: This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.
Publisher Copyright:
© 2022, Emerald Publishing Limited.
PY - 2023/7/10
Y1 - 2023/7/10
N2 - Purpose: This paper aims to examine the association between busy directors on corporate boards and accounting conservatism. Design/methodology/approach: The authors use a sample of 500 firms listed on the Australian Security Exchange from 2004 to 2019. The busyness of non-executive directors is proxied by three indicators. For accounting conservatism, the authors use both conditional and unconditional accounting conservatism via asymmetric timeliness of earnings, accrual-based loss recognition, cumulative total accruals and book-to-market ratio. The authors cluster the standard errors at the firm level to compensate for potential residuals’ dependency and heteroscedasticity, in addition to analysing the main models using year and industry fixed effects (Petersen, 2009). Separately, the authors look at the impact of female busy directors on firms’ adoption of conservative accounting methods. Both propensity score matching analyses and Heckman (1979) two-stage approach systematically address endogeneity issues. Findings: The presence of busy directors on boards leads to greater unconditional conservatism and less conditional conservatism. The relationships between busy female directors with both conditional and unconditional conservatism remain consistent with the main findings. Practical implications: This paper provides useful insights for shareholders, regulators and accounting standards setters to better evaluate busy directors’ effectiveness in monitoring firms’ financial reporting quality. Directors and the companies themselves can refer to the authors’ findings to decide the best structure for their boards and committees, considering their specific monitoring requirements. Given that no mandatory restriction has been legislated, improved policies or new ones will ensure that busy directors can effectively fulfil their duties. Originality/value: This research contributes to the broader research theme by examining the influence of directors’ quality on financial reporting conservatism. It also contributes to the ongoing debate in the corporate finance literature regarding the experience and busyness hypotheses of directors with multiple directorships. Additionally, this research adds value to gender diversity research by finding evidence that female busy directors follow the same pattern of reporting conservatism as male busy directors.
AB - Purpose: This paper aims to examine the association between busy directors on corporate boards and accounting conservatism. Design/methodology/approach: The authors use a sample of 500 firms listed on the Australian Security Exchange from 2004 to 2019. The busyness of non-executive directors is proxied by three indicators. For accounting conservatism, the authors use both conditional and unconditional accounting conservatism via asymmetric timeliness of earnings, accrual-based loss recognition, cumulative total accruals and book-to-market ratio. The authors cluster the standard errors at the firm level to compensate for potential residuals’ dependency and heteroscedasticity, in addition to analysing the main models using year and industry fixed effects (Petersen, 2009). Separately, the authors look at the impact of female busy directors on firms’ adoption of conservative accounting methods. Both propensity score matching analyses and Heckman (1979) two-stage approach systematically address endogeneity issues. Findings: The presence of busy directors on boards leads to greater unconditional conservatism and less conditional conservatism. The relationships between busy female directors with both conditional and unconditional conservatism remain consistent with the main findings. Practical implications: This paper provides useful insights for shareholders, regulators and accounting standards setters to better evaluate busy directors’ effectiveness in monitoring firms’ financial reporting quality. Directors and the companies themselves can refer to the authors’ findings to decide the best structure for their boards and committees, considering their specific monitoring requirements. Given that no mandatory restriction has been legislated, improved policies or new ones will ensure that busy directors can effectively fulfil their duties. Originality/value: This research contributes to the broader research theme by examining the influence of directors’ quality on financial reporting conservatism. It also contributes to the ongoing debate in the corporate finance literature regarding the experience and busyness hypotheses of directors with multiple directorships. Additionally, this research adds value to gender diversity research by finding evidence that female busy directors follow the same pattern of reporting conservatism as male busy directors.
KW - Accounting conservatism
KW - Australia
KW - Busy boards
KW - Busy directors
KW - Conditional conservatism
KW - Unconditional conservatism
UR - http://www.scopus.com/inward/record.url?scp=85128209652&partnerID=8YFLogxK
U2 - 10.1108/MEDAR-10-2021-1466
DO - 10.1108/MEDAR-10-2021-1466
M3 - Article
AN - SCOPUS:85128209652
SN - 2049-3738
VL - 31
SP - 970
EP - 1014
JO - Meditari Accountancy Research
JF - Meditari Accountancy Research
IS - 4
ER -