An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Flora Niu
Wilfrid Laurier University

Abstract: This paper examines whether recently enhanced governance initiatives are accompanied by an improved quality of earnings. Using firm-level This paper examines whether recently enhanced governance initiatives are accompanied by an improved quality of earnings. Using firm-level corporate governance rankings for a sample of Canadian firms in the years 2001-2003, I find that the magnitude of abnormal accruals is negatively associated with the independence of the board of directors and the strength of shareholder rights. I also find that the return-earnings association is positively related to the strength of shareholder rights and the quality of governance practice disclosures. Overall, this study provides early evidence that is consistent with Canadian regulators’ initiatives that stronger corporate governance mechanisms provide greater monitoring of the financial accounting process and may be important factors in improving the integrity of financial reporting.

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