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The role of corporate governance
in convergence with IFRS:
evidence from China
A.R. Sanchez Jr School of Business, Texas A&M International University, Laredo, Texas, USA, and
Received 28 July 2010
Accepted 8 April 2011
Fogelman College of Business and Economics, The University of Memphis, Memphis, Tennessee, USA
Purpose – The purpose of this paper is to examine the important role played by corporate governance in de facto International Financial Reporting Standards (IFRS) convergence, and to provide empirical evidence that audit quality mediates the degree of IFRS convergence. Design/methodology/approach – The paper develops a model showing the role of corporate governance in converging national accounting standards with the IFRS, and empirically tests the model using a sample of Chinese listed companies with B-shares. Both analysis of variance and multiple regressions are employed to test the hypotheses.
Findings – Effective internal corporate governance helps companies to be more aligned with IFRS and thus provide high quality ﬁnancial information. Furthermore, audit quality as an external governance factor mediates the relationship between internal corporate governance and IFRS convergence. Research limitations/implications – The paper extends research ﬁndings, as shown in the literature, by showing the role of corporate governance in the IFRS convergence, especially the mediating effect of audit quality. In addition to accounting standards, global convergence of auditing standards and corporate governance is imperative if de facto convergence of accounting standards is to be achieved.
Originality/value – The paper highlights the effect of corporate governance and the interaction between internal and external corporate governance in achieving IFRS convergence, which has been largely ignored in the literature. Based on the results, the paper proposes an explanation for the mixed results shown in the literature.
Keywords Accounting, Audit quality, China, Convergence of accounting standards, Corporate governance, International Financial Reporting Standards Paper type Research paper
Currently there is a heated debate about the convergence of the National Accounting Standards (NAS) with International Financial Reporting Standards (IFRS) among policy makers, standard setters, regulators, professional bodies, and companies worldwide. Furthermore, academic research has shown signiﬁcant interest in examining the possibility, determinants, and effects of IFRS convergence as a result The authors gratefully acknowledge constructive feedback from the participants of the 2010 AAA International Accounting Section Midyear Meeting and constructive suggestions from the anonymous reviewers.
International Journal of Accounting
and Information Management
Vol. 20 No. 2, 2012
q Emerald Group Publishing Limited
of the initiatives taken to adopt IFRS in many countries. The results have been mixed (Barth et al., 2008; Hope et al., 2006; Peng et al., 2008). This paper examines the role of corporate governance in IFRS convergence and proposes a possible explanation to reconcile the mixed results of prior research. Reviews of corporate governance research such as Gillan (2006) and Brown et al. (2011) classify corporate governance mechanisms into two groups: internal governance and external governance. The researchers of this study adopted this classiﬁcation and found that companies with certain internal corporate governance characteristics tend to be more aligned with IFRS. Moreover, audit quality plays an important mediating role in IFRS convergence for Chinese listed companies.
This paper contributes to the literature in several ways....
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