Do non-staggered board elections matter to earnings quality and the value relevance of earnings and book value?

Abstract

Purpose The purpose of this paper is to examine the impact of non-staggered voting for members of the board of directors on earnings quality and the value relevance of earnings and book value. Design/methodology/approach The authors used a sample of Taiwanese firms whose board was elected as a whole every three years from 2003 to 2013. The authors used multiple regression analysis to test whether board of directors elections and corporate governance affected earnings quality and the value relevance of earnings and book value. Findings The authors found that elections led to lower earnings quality, but better corporate governance led to greater earnings quality. In the presence of board elections, earnings have reduced value relevance but book value had increased value relevance. Finally, given board elections, the relative value relevance of earnings and book value on stock price was not fully moderated by strong corporate governance. Research limitations/implications The results presented here indicate the importance of better corporate governance in diffusing suspicions of management occasioned by the use of discretionary accruals in years in which board elections take place. Better corporate governance regimes led to a more positive relationship of discretionary accruals to earnings persistence, even in the presence of directorial elections. Similarly, better corporate governance regimes led to a more positive relationship between earnings per share and stock prices. Limitations include the restriction of the testing locale to Taiwan. That said, many companies around the globe use non-staggered board elections. Accordingly, these results suggest issues of importance to corporate governance advocates beyond Taiwan as well. Originality/value This study deepens the field’s understanding of the impact of corporate governance arrangements and schedules for electing board of directors’ members on issues of interest to stockholders.

Endividamento e decisões contábeis: a relação não linear entre dívida e qualidade dos lucros

“…A literatura apresenta evidências de que a qualidade do resultado pode depender de fatores como o nível de governança e o desempenho operacional (Chiang, Kleinman, & Lee, 2017), as expectativas de mercado (Cormier, Demaria, & Magnan, 2017), o nível de dívida (Bharath et al,2008), dentre outros. Em todas essas análises, na presença de gerenciamento de resultados via discricionariedade dos lucros, verifica-se um aumento dos custos para a empresa associados à diminuição da qualidade dos lucros e de sua capacidade em prever alterações futuras do fluxo de caixa (Dechow et al, 2010).…”

Accounting comparability and the value relevance of earnings and book value

“…Moreover, because we include interaction terms in our regression models throughout the paper, multicollinearity is a relevant concern. This concern is common in the value relevance literature (e.g., Chiang et al, 2017). Therefore, we check variance inflation factors (VIFs) for each of the variables included in all of our models to ensure that they are below the typically suggested cutoff of 10 (Cohen, Cohen, West, & Aiken, 2003, p. 423).…”

“…We argue that, because accounting comparability increases both the quantity and quality of financial information available to investors, it improves the value relevance of the key financial metrics examined in previous literature-earnings and book value of equity (e.g., Bae & Jeong, 2007;Burgstahler & Dichev, 1997;Chiang, Kleinman, & Lee, 2017;Clarkson, Hanna, Richardson, & Thompson, 2011). Our examination focuses on accounting comparability for the following three reasons.…”

The Role of Corporate Governance Mechanism in Enhancing Firm Value

“…Chalevas and Tzovas [2] found that the mandatory corporate governance mechanisms decrease firms' weighted average cost of capital, increase firm's financing, and do not influence firms' effectiveness and earnings manipulation. Chiang et al [3] found that elections led to lower earnings quality, but better corporate governance led to greater earnings quality. In the presence of board of elections, earnings reduce value relevance, but book value increases value relevance.…”

“…One of the approaches in determining the value of intrinsic stocks is the price book value (PBV), which shows how far a company is capable in creating firm values that is relative to the total of invested capital. Higher PBV ratio implies that a company has created values for its shareholders [3][4][5].…”