Board of director characteristics and earnings quality surrounding implementation of a corporate governance code in Mexico

Susan Machuga () and Karen Teitel ()
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Susan Machuga: Department of Accounting, University of Hartford
Karen Teitel: Department of Economics, College of the Holy Cross

No 915, Working Papers from College of the Holy Cross, Department of Economics

Abstract: Mexico recently enacted a corporate governance code. One objective of the code is to improve board of director oversight and to reveal more transparent information to shareholders by including detailed information regarding the structure of the board and its functions. Research in the U.S. has documented improvement in earnings quality associated with board characteristics. Whether or not board characteristics are associated with improved earnings quality in Mexico is questionable given the business environment in which firms operate, characterized by controlling family ownership and weak legal protection of property rights. The purpose of this study is to investigate whether or not board characteristics other than compliance with board independence (board composition disclosure, family concentrated ownership and shared-directors) are associated with the improvement in earnings quality found in previous research. Earnings quality is measured using income smoothing, timely loss recognition and conditional accruals. We find firms that do not have concentrated family ownership or share directors have greater increases in earnings quality than firms that have concentrated family ownership or share directors. We conclude that applying board-level corporate governance reforms, without considering cultural and legal environments, may limit the desired effects of the change.

Keywords: Accounting; Earnings (search for similar items in EconPapers)
JEL-codes: M41 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2009-12
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Citations: View citations in EconPapers (10)

Published in Journal of International Accounting, Auditing and Taxation, Volume 18, Number 1, 2009, Pages 1-13.

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