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

Francisco J Roman
Rice University

Richard Price
Rice University

Brian Rountree
Rice University

Abstract: We examine how financial reporting transparency and quality of Mexican firms vary with corporate governance. We utilize compliance data from the Code of ‘Best’ Corporate Practices, disclosed annually by public firms in Mexico. We document a significant increase in compliance over the 2000-2004 time period along with improvements in earnings associations with both contemporaneous market returns and future cash flows. Results suggest improved governance characteristics may have led to improved financial reporting and transparency. We directly assess this by designating firms with greater compliance as better governed. Results indicate that better governed firms do not exhibit statistically less earnings management behavior nor does the market place greater weights on the reported earnings relative to less well governed firms. We conclude greater compliance does not lead to corresponding improvements in transparency and reporting.

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