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External Corporate Governance and Misreporting
Author(s) -
Baber William R.,
Kang SokHyon,
Liang Lihong,
Zhu Zinan
Publication year - 2015
Publication title -
contemporary accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.769
H-Index - 99
eISSN - 1911-3846
pISSN - 0823-9150
DOI - 10.1111/1911-3846.12137
Subject(s) - corporate governance , accounting , charter , business , shareholder , premise , statutory law , quality (philosophy) , finance , political science , law , linguistics , philosophy , epistemology
Abstract This study investigates how external corporate governance provisions, specifically statutory and corporate charter provisions that limit direct shareholder participation in the governance process, affect the likelihood of an accounting restatement. The analysis indicates that strong external governance (fewer restrictions on shareholder participation) is associated with a relatively low incidence of accounting restatements. The effect of external governance is incremental to that of internal governance, which is considered as provisions that foster effective board oversight of management. Such evidence supports the premise that shareholder participation improves financial reporting quality.