The nexus between corporate governance structures and investment efficiency of Philippine publicly listed firms: An accounting conservatism perspective

Date of Publication

2014

Document Type

Bachelor's Thesis

Degree Name

Bachelor of Science in Accountancy

Subject Categories

Accounting

College

Ramon V. Del Rosario College of Business

Department/Unit

Accountancy

Thesis Adviser

Rodiel C. Ferrer

Defense Panel Member

Placido M. Menaje, Jr.
Herminigilda E. Salendrez

Abstract/Summary

This paper explores the cause-and-effect relationships of corporate governance, accounting conservatism, and investment efficiency in the Philippine setting. Firstly, the research defines the different structures of corporate governance and how these structures determine the level of accounting conservatism employed in the corporation. Secondly, the research predicts how accounting conservatism can result in a corporation’s investment efficiency, which is defined as higher future profitability and lower special items charges. In exploring these relationships, theoretical explanations and empirical data are used. Specifically, the financial statements of 120 publicly listed firms in the Philippines are examined for quantitative and qualitative data, thereby shedding a unique light on Philippine corporate environment amidst a Western-oriented body of literature on corporate governance and conservatism.

Conservatism has existed as a fundamental accounting principle for centuries.

With its recent removal from the accounting framework because of its supposed interference with neutrality, various studies began delving into the importance of conservatism as a control function in the corporate environment. This paper aims to explore the real benefits of conservatism by focusing on its role as a means to curb agency problems that arise because of the inherently conflicting goals of owners and managers in a corporation.

Using a panel data regression analysis , this research finds that there is a statistically significant relationship between the measures of corporate governance (insider ownership, institutional ownership, board expertise, CEO duality, and family group affiliation) and the two alternative firm-year measures of accounting conservatism (AT–Score and AC–Score). Specifically, greater insider ownership, greater institutional ownership, higher board expertise, and family or group affiliation all result in higher conservatism. On the other hand, CEO duality results in lower conservatism.

Furthermore, this research finds that conservatism is positively related with future profitability and negatively related with future special items charges. This suggests that a more conservative firm can be expected to perform better prospectively.

These findings have implications for various stakeholders. Shareholders may want to turn to conservatism measurements in determining the likelihood of returns on their investments. In achieving their goal of high profits and low instances of agency costs, firm management and boards of directors may use this study to form a strong corporate governance structure that enhances monitoring, increases conservatism, and subsequently rakes in investment efficiency. From the empirical findings on the real benefits of conservatism, standard setters may derive insights on the decision to remove conservatism from the conceptual framework. The government and regulatory bodies can

use this study as a springboard to raise greater awareness on good corporate governance and execute better corporate policies that will improve the business climate of the Philippines. Lastly, as one of the first to empirically generate alternative measures of accounting conservatism in the Philippines and analyze them in light of corporate governance and investment efficiency, this study contributes to the current literature on Philippine corporate governance, conservatism, and investment efficiency, and can thus benefit not only academic researchers but also various practitioners involved in these fields.

Abstract Format

html

Note

Running head: Governance, conservatism, and investment efficiency.

Language

English

Format

Print

Accession Number

TU18868;CDTU018868

Shelf Location

Archives, The Learning Commons, 12F, Henry Sy Sr. Hall

Physical Description

2 v. : illustrations (some colored) ; 28 cm. + ; 1 computer optical disc.

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