research in IFRS

Topics: Corporate governance, Balance sheet, Board of directors Pages: 18 (7776 words) Published: May 6, 2014
The current issue and full text archive of this journal is available at www.emeraldinsight.com/1834-7649.htm

The role of corporate governance
in convergence with IFRS:
evidence from China
Yu Chen
A.R. Sanchez Jr School of Business, Texas A&M International University, Laredo, Texas, USA, and

Corporate
governance in
convergence
171
Received 28 July 2010
Accepted 8 April 2011

Zabihollah Rezaee
Fogelman College of Business and Economics, The University of Memphis, Memphis, Tennessee, USA
Abstract
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

1. Introduction
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
pp. 171-188
q Emerald Group Publishing Limited
1834-7649
DOI 10.1108/18347641211218470

IJAIM
20,2

172

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....

References: AICPA (2008), “How widespread is the adoption of IFRS around the world?”, available at: www.
ifrs.com/ifrs_faqs.html#q3 (accessed September 2, 2009).
Anderson, R.C., Mansi, S.A. and Reeb, D.M. (2004), “Board characteristics, accounting report
integrity, and the cost of debt”, Journal of Accounting & Economics, Vol
Baron, R.M. and Kenny, D.A. (1986), “The moderator-mediator variable distinction in social
psychological research: conceptual, strategic, and statistical considerations”, Journal of
Personality and Social Psychology, Vol. 51 No. 6, p. 1173.
Barth, M.E. and Kallapur, S. (1996), “The effects of cross-sectional scale differences on regression
results in empirical accounting research”, Contemporary Accounting Research, Vol
Barth, M.E., Landsman, W.R. and Lang, M.H. (2008), “International accounting standards and
accounting quality”, Journal of Accounting Research, Vol
Benkel, M., Mather, P. and Ramsay, A. (2006), “The association between corporate governance
and earnings management: the role of independent directors”, Corporate Ownership
Brown, P., Beekes, W. and Verhoeven, P. (2011), “Corporate governance, accounting and finance:
a review”, Accounting & Finance, Vol
Chen, C.J.P. and Jaggi, B. (2000), “Association between independent non-executive directors,
family control and financial disclosures in Hong Kong”, Journal of Accounting & Public
Chen, C.J.P., Gul, F.A. and Su, X. (1999), “A comparison of reported earnings under Chinese
GAAP vs IAS: evidence from the Shanghai Stock Exchange”, Accounting Horizons, Vol
Chen, G., Firth, M., Gao, D.N. and Rui, O.M. (2006), “Ownership structure, corporate governance,
and fraud: evidence from China”, Journal of Corporate Finance, Vol
Chen, J.J. and Cheng, P. (2007), “Corporate governance and the harmonisation of Chinese
accounting practices with IFRS practices”, Corporate Governance: An International
Chen, L., Yue, M. and Dongwei, S. (2009), “Corporate governance and firm efficiency: evidence
from China’s publicly listed firms”, Managerial & Decision Economics, Vol
Chen, S., Sun, Z. and Wang, Y. (2002), “Evidence from China on whether harmonized accounting
standards harmonize accounting practices”, Accounting Horizons, Vol
Cheng, C.S.A. and Lin, S.W.J. (2009), “When do firms revalue their assets upwards?
Evidence from the UK”, International Journal of Accounting and Information
Cheng, C.S.A. and Reitenga, A. (2009), “Characteristics of institutional investors and
discretionary accruals”, International Journal of Accounting and Information
Cheng, E.C.M. and Courtenay, S.M. (2006), “Board composition, regulatory regime and voluntary
disclosure”, International Journal of Accounting, Vol
China Securities Regulation Committee (2007), Zhengjian Kuaiji Zi [2007] No. 30.
Christie, A.A. (1987), “On cross-sectional analysis in accounting research”, Journal of Accounting
and Economics, Vol
Cohen, J., Krishnamoorthy, G. and Wright, A. (2004), “The corporate governance mosaic and
financial reporting quality”, Journal of Accounting Literature, Vol
Cornett, M.M., Marcus, A.J. and Tehranian, H. (2008), “Corporate governance and
pay-for-performance: the impact of earnings management”, Journal of Financial
Covrig, V.M., Defond, M.L. and Hung, M. (2007), “Home bias, foreign mutual fund holdings, and
the voluntary adoption of international accounting standards”, Journal of Accounting
Dahya, J., Dimitrov, O. and McConnell, J.J. (2009), “Does board independence matter in companies
with a controlling shareholder?”, Journal of Applied Corporate Finance, Vol
Daske, H., Hail, L., Leuz, C. and Verdi, R.S. (2007), “Adopting a label: heterogeneity in the
economic consequences of IFRS adoptions”, working paper, The University of Chicago
Dechow, P.M., Sloan, R.G. and Sweeney, A.P. (1996), “Causes and consequences of earnings
manipulation: an analysis of firms subject to enforcement actions by the SEC”,
Deloitte (2007), “China drops IFRS reporting for listed companies”, available at: www.iasplus.
com/country/china.htm#0709 (accessed September 2, 2009).
Dey, A. (2008), “Corporate governance and agency conflicts”, Journal of Accounting Research,
Vol
Fama, E.F. and Jensen, M.C. (1983), “Agency problems and residual claims”, Journal of Law
& Economics, Vol
Geiger, M.A. and Rama, D.V. (2006), “Audit firm size and going-concern reporting accuracy”,
Accounting Horizons, Vol
Gillan, S.L. (2006), “Recent developments in corporate governance: an overview”, Journal of
Corporate Finance, Vol
Gul, F.A., Kim, J.-B. and Qiu, A.A. (2010), “Ownership concentration, foreign shareholding, audit
quality, and stock price synchronicity: evidence from China”, Journal of Financial
Hakim, F. and Omri, M.A. (2010), “Quality of the external auditor, information asymmetry, and
bid-ask spread: case of the listed Tunisian firms”, International Journal of Accounting and
Hope, O.-K., Jin, J. and Kang, T. (2006), “Empirical evidence on jurisdictions that adopt IFRS”,
Journal of International Accounting Research, Vol
Kanagaretnam, K., Lobo, G.J. and Whalen, D.J. (2007), “Does good corporate governance reduce
information asymmetry around quarterly earnings announcements?”, Journal of
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Ifrs Essay
  • Ifrs Essay
  • Ifrs Essay
  • Ifrs Essay
  • IFRS Essay
  • Ifrs Essay
  • Ifrs Essay
  • IFRS Essay

Become a StudyMode Member

Sign Up - It's Free
My Friend Is a Magical Girl | Dan Petronijevic | L'ordre du jour