Nonstationarity in the relationship between corporate governance and accounting conservatism

Robert Kieschnick and Wenyun Shi

Journal of Business Finance & Accounting, 2021, vol. 48, issue 3-4, 463-497

Abstract: Noe and Rebello (2012) argue that a firm's environment is not stationary and, as a result, the relationships between corporate governance and firm behavior change to adapt to changes in its environment. We provide evidence that a legal shock (Sarbanes–Oxley Act) and an economic shock (2007/2008 financial crisis) induced changes in the relationships between different corporate governance features and a firm's tendency to report conservatively. Additionally, we provide evidence on the weakness of fixed effects panel regressions to fully understand the effects of various corporate governance features on a firm's tendency to report conservatively.

Date: 2021
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