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Choice of governance structure and earnings quality

Pamela Kent (Accounting Department, Griffith University, Queensland, Australia)
Richard Anthony Kent (Finance Department, University of Queensland, Brisbane, Australia)
James Routledge (Bond University, Gold Coast, Australia)
Jenny Stewart (Griffith University, Brisbane, Australia)

Accounting Research Journal

ISSN: 1030-9616

Article publication date: 7 November 2016

3221

Abstract

Purpose

The purpose of this paper is to examine the effectiveness of voluntary governance mechanisms in Australia.

Design/methodology/approach

This study identifies similar choices of corporate governance by Australian firms and tests the effectiveness of the choices made based on the earnings quality of reported firms. Cluster analysis is conducted using governance best practice variables, firm size and an earnings quality variable.

Findings

This paper’s results support the voluntary governance approach for smaller firms, but suggest that mandatory governance requirements could be beneficial for larger firms. Evidence suggests that a benefit accrues for larger firms with the adoption of governance best practice. Cluster analysis indicates that larger firms tend to exhibit higher levels of adoption of governance best practice than smaller firms.

Originality/value

This paper adds to the literature by providing important information regarding the suitability of adoption of voluntary governance mechanisms in Australia.

Keywords

Citation

Kent, P., Kent, R.A., Routledge, J. and Stewart, J. (2016), "Choice of governance structure and earnings quality", Accounting Research Journal, Vol. 29 No. 4, pp. 372-390. https://doi.org/10.1108/ARJ-06-2014-0056

Publisher

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Emerald Group Publishing Limited

Copyright © 2016, Emerald Group Publishing Limited

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