Authors: Chandrasekhar Krishnamurti; Pran K. Boolaky
Addresses: Faculty of Business, Education, Law and Arts, School of Commerce, University of Southern Queensland, Toowoomba, QLD 4350, Australia ' Griffith Business School, Griffith University, 170 Kessels Road, Nathan, QLD, 4111, Australia
Abstract: While extant research has examined whether weaknesses in accounting systems can potentially trigger an economic crisis, there is very little work on the issue of whether a financial crisis could potentially affect the quality of accounting. Our study explicitly examines the changes in accounting quality during the recent global financial crisis (GFC). We posit the 'risk-avoidance' and 'managerial opportunism' hypotheses to examine the quality of accounting during the GFC. Our empirical work using country level perceived accounting quality shows support for the managerial opportunism hypothesis. Perceived accounting quality declined during the GFC, especially in European countries. Further, the changes in perceived accounting quality is related to changes in financial market quality supporting the 'financial market linkage' hypothesis. There is no evidence indicating that European countries were more adversely affected after controlling for determinants of perceived accounting quality. Our main result is robust to controls for potential endogeneity.
Keywords: perceived quality; accounting quality; global financial crisis; managerial opportunism; financial markets; market links; risk avoidance; Europe.
International Journal of Corporate Governance, 2015 Vol.6 No.2/3/4, pp.141 - 177
Received: 14 Aug 2015
Accepted: 27 Oct 2015
Published online: 13 Feb 2016 *