We predict that firms with stronger corporate governance will exhibit a higher degree of accounting conservatism. Governance level is assessed using a com posite measure that incorporates several internal and external characteristics. Consistent with our prediction, strong governance firms show significantly higher levels of con ditional accounting conservatism. Our tests take into account the endogenous nature of corporate governance, and the results are robust to the use of several measures of conservatism (market based and nonmarket based). Our evidence is consistent with the direction of causality flowing from governance to conservatism, and not vice versa, indicating that governance and conservatism are not substitutes. Finally, we study the impact of earnings discretion on the sensitivity of earnings to bad news across gover nance structures. We find that, on average, strong governance firms appear to use discretionary accruals to inform investors about bad news in a timelier manner.

Manuscript Type: EmpiricalResearch Question/Issue: This paper analyzes the role of boards of directors in constraining research and development (R&D) spending manipulation. Extant research on earnings management indicates that independent directors reduce accounting accruals manipulation; however, there is little evidence on their effectiveness in limiting potentially value reducing R&D cuts motivated by short-term earnings pressures. Research Findings/Results: Using a large sample of UK firms, I study whether independent boards are efficient at detecting and constraining myopic R&D cuts. The results indicate that more independent boards constrain the manipulation of R&D expenditure. The research design controls for the potential confounding effect of the decision to capitalize vs. expense R&D outlays. Theoretical Implications: The results indicate that independent directors have sufficient technical knowledge to identify opportunistic reductions in R&D, and efficiently constrain opportunistic R&D spending. Practical Implications: The evidence supports the emphasis that recent policy statements have put on increasing the number of independent directors on corporate boards. This study offers insights to policy makers interested in enhancing the monitoring role of corporate boards.

a b s t r a c tWe argue that conservatism improves investment efficiency. In particular, we predict that it resolves debt equity conflicts, facilitating a firm's access to debt financing and limiting underinvestment. This permits the financing of prudent investments that otherwise might not be pursued. Our empirical results confirm these predictions. We find that more conservative firms invest more and issue more debt in settings prone to underinvestment and that these effects are more pronounced in firms characterized by greater information asymmetries. We also find that conservatism is associated with reduced overinvestment, even for opaque investments such as research and development.

Recent research in accounting suggests female directors exert more stringent monitoring over the financial reporting process than their male counterparts. However, an emerging literature in finance and economics provides mixed findings and questions whether females in leadership roles significantly differ from their male counterparts. Building on this literature, we reexamine the link between the presence of female directors, gender biases, and financial statements quality. Using a large sample of UK firms we find that a larger percentage of women among independent directors is significantly associated with lower earnings management practices. However, we show that this relation disappears if we focus on firms that do not discriminate against women in the access to directorships. Finally, we provide evidence that gender biases are associated with lower earnings quality. We interpret our results as consistent with (1) prior evidence that males and females do not differ substantially when performing the same role in highly specialized positions, and with (2) discrimination being an important factor explaining the association between female directors and accounting quality.