Board Independence and Asymmetric Timeliness of Earnings in a Bank- oriented Financial System: Evidence from Finland
KANKAANPÄÄ, JARI (2009)
2009
Yrityksen taloustiede, laskentatoimi - Accounting and Finance
Kauppa- ja hallintotieteiden tiedekunta - Faculty of Economics and Administration
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Hyväksymispäivämäärä
2009-10-08
Julkaisun pysyvä osoite on
https://urn.fi/urn:nbn:fi:uta-1-20110
https://urn.fi/urn:nbn:fi:uta-1-20110
Tiivistelmä
This study examines the link between the board independence and asymmetric timeliness of earnings in a bank-oriented financial system. The models by Basu (1997) and Ball & Shivakumar (2005) are re-estimated. This study extends prior research by Beekes et al. (2004), Ahmed & Duellman (2007) and Garcia Lara et al. (2007) and investigates the relationship between board compositions and asymmetric timeliness of earnings in civil law regime and capital markets, which are commonly considered more bank than market based. Such institutional settings exist among others, in Finland, Japan, Germany and Scandinavia.
The Finnish data serves well for this study because accounting quality in Finland is considered to be among the highest in the world. The estimation period 2003-2005 serves well for this study, because the renewed and highly detailed corporate governance recommendation for Finnish listed companies entered into force in December 2003.
The results obtained using the Basu model show that bad news (negative returns) are reflected in earnings on a more timely basis than good news (positive returns). In this respect the results are in line with earlier findings. Unexpectedly it was found that timeliness of bad news reporting does not depend on the number of independent directors, while the timeliness of good news reporting does. The result can be interpreted in such a way that independent directors do not directly increase the market reaction to good news (positive returns) but have an indirect effect by increasing the markets` credence in the board and their reporting. The results from the Ball & Shivakumar model indicate that, inconsistently with the Basu model, timely recognition of bad news (negative cash flows) over good news (positive cash flows) is statistically insignificant.
Asiasanat:Asymmetric timeliness, Bank Oriented Financial System, Board Independence, Corporate Governance, Earnings conservatism
The Finnish data serves well for this study because accounting quality in Finland is considered to be among the highest in the world. The estimation period 2003-2005 serves well for this study, because the renewed and highly detailed corporate governance recommendation for Finnish listed companies entered into force in December 2003.
The results obtained using the Basu model show that bad news (negative returns) are reflected in earnings on a more timely basis than good news (positive returns). In this respect the results are in line with earlier findings. Unexpectedly it was found that timeliness of bad news reporting does not depend on the number of independent directors, while the timeliness of good news reporting does. The result can be interpreted in such a way that independent directors do not directly increase the market reaction to good news (positive returns) but have an indirect effect by increasing the markets` credence in the board and their reporting. The results from the Ball & Shivakumar model indicate that, inconsistently with the Basu model, timely recognition of bad news (negative cash flows) over good news (positive cash flows) is statistically insignificant.
Asiasanat:Asymmetric timeliness, Bank Oriented Financial System, Board Independence, Corporate Governance, Earnings conservatism