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Corporate governance and value relevance of accounting information

Corporate governance and value relevance of accounting information This paper aims to explore how the characteristics of the board of directors (BoD) shape earnings and book value information available to market participants.Design/methodology/approachThe authors investigated the impact of board size, presence of non-executives and role duality as proxies of effective corporate governance on the value relevance of financial reporting for 178 firms on the Kuwait stock exchange in 2013. Regression analysis based on Ohlson’s (1995) valuation model was used to test hypotheses.FindingsThe authors found that board size was significantly associated with company value and that Kuwaiti firms with large boards increased the value-relevance of earnings and book value. The influence of role duality was positive although not significant. The presence of non-executives on the board had a negative correlation with market value (not significant).Research limitations/implicationsThese findings deliver empirical support for the prediction that the characteristics of the BoD improve the value relevance of financial reporting. Limitations such as small sample size and one-year duration of the study did not negate the basic findings, however. Future studies will use larger samples, longer duration and additional board characteristics.Practical implicationsThis study provides empirical support for the hypothesis that board size influences market valuation. This study may benefit managers, investors and other decision-makers.Originality/valueThis study delivers empirical evidence on the impact of board characteristics on the value relevance of accounting information. It will be useful for regulators and market participants monitoring the influence of board characteristics on the value relevance of accounting information. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Ethics and Systems Emerald Publishing

Corporate governance and value relevance of accounting information

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
2514-9369
DOI
10.1108/ijoes-08-2019-0140
Publisher site
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Abstract

This paper aims to explore how the characteristics of the board of directors (BoD) shape earnings and book value information available to market participants.Design/methodology/approachThe authors investigated the impact of board size, presence of non-executives and role duality as proxies of effective corporate governance on the value relevance of financial reporting for 178 firms on the Kuwait stock exchange in 2013. Regression analysis based on Ohlson’s (1995) valuation model was used to test hypotheses.FindingsThe authors found that board size was significantly associated with company value and that Kuwaiti firms with large boards increased the value-relevance of earnings and book value. The influence of role duality was positive although not significant. The presence of non-executives on the board had a negative correlation with market value (not significant).Research limitations/implicationsThese findings deliver empirical support for the prediction that the characteristics of the BoD improve the value relevance of financial reporting. Limitations such as small sample size and one-year duration of the study did not negate the basic findings, however. Future studies will use larger samples, longer duration and additional board characteristics.Practical implicationsThis study provides empirical support for the hypothesis that board size influences market valuation. This study may benefit managers, investors and other decision-makers.Originality/valueThis study delivers empirical evidence on the impact of board characteristics on the value relevance of accounting information. It will be useful for regulators and market participants monitoring the influence of board characteristics on the value relevance of accounting information.

Journal

International Journal of Ethics and Systems – Emerald Publishing

Published: Apr 22, 2020

Keywords: Kuwait; Value relevance; Board of directors; Corporate governance; Market valuation

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