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American J. of Finance and Accounting (1 paper in press)
Accounting conservatism and firms performance: Evidence from Malaysian listed firms by Saif Rehman Abstract: This study examines the effect of audit committee and external auditor quality on two measures of accounting conservatism, and the benefits of accounting conservatism on firms performance. In addition, this study also investigates whether the two measures of conservatism (accrual based conservatism and asymmetrical timeliness conservatism) mediate the relationship between audit committee and external auditor quality factors with market based firms performance. \r\n\r\nA total of 543 sample firms are selected from the Bursa Malaysia for the period from 2004 to 2013. In addition, some information relating to audit committee and auditor quality are collected from firms annual reports. For data analysis, panel data methodology is employed and structural equation modeling (SEM) technique is used to test the developed hypotheses of this study.\r\nTwo well-known and widely accepted methods have been adopted as a measure of conservatism accrual based measure developed by Ball and Shivakumar (2005) and asymmetric timeliness measure introduced by Basu (1997). Regarding the firms performance a market-based indicator (Tobins Q ratio) is used in this study to measure firms performance. \r\n\r\nResults show that audit committee effectiveness and external auditor quality found to be significant with two-year-lagged effect on both measures of conservatism. Both measures of conservatism were found to be significant with immediate effect on market based firms performance. Furthermore, both measures of conservatism mediated the relationship between (a) audit committee effectiveness and market based firms performance, and (b) external auditor quality and market based firms performance. The findings of this study contribute to the signaling theory, agency theory, reputation theory and accounting conservatism literature in emerging economies settings. \r\n
Keywords: Accounting conservatism; signaling theory; firms’ performance; Malaysian listed firms.