Corporate governance and the value‐relevance of accounting information

Abstract

PurposeThis paper seeks to examine the relationship between corporate governance and the value‐relevance of accounting information in Australia.Design/methodology/approachThis paper uses board, audit committee and external audit related variables to proxy for corporate governance. Value‐relevance is measured by the adjusted R2 derived from a regression of stock price on earnings and equity book values following Ohlosn's accounting‐based valuation framework.FindingsRegression results show that firms with strong governance structure exhibit higher value‐relevance of accounting information. Results further show that firm‐specific economic variables are important determinants of the value‐relevance of accounting information.Research limitations/implicationsSignificant regulatory reforms regarding corporate governance around the world give an impression that regulators believe that governance plays a key role in ensuring, among others, credible financial reporting. This paper provides support for such a view in Australian context.Originality/valueThis paper uses the relationship between accounting numbers and share price as the measure of accounting information quality and also considers the impact of ASX Corporate Governance Best Practice Code on the changes in the value‐relevance of accounting information.