Journal of Accounting, Finance & Management Strategy





Volume 11, Number 1, June 2016

The Correlation between National Governance and Accounting Conservatism —A Case Study on the Main Countries of the World


The outbreak of the European Sovereign Debt Crisis has gradually urged the governance ability of a government to the foreground. Nowadays when the global economy is thriving, government behavior has also become an external risk for enterprises. By observing financial statements of listed companies, this research examines if accounting conservatism of business enterprises is influenced by the quality of government governance. This research is conducted in accordance with the definition of government governance set by the World Bank as an index of governance quality, and employs three types of methods compiled from the past literature to measure properties of accounting conservatism. The empirical evidence shows that the quality of government governance has positive correlation with accounting conservatism of enterprises. However, the correlation turns out to be empirically negative when it comes to the connection between national development levels of a country and accounting conservatism; in other words, the conservative behavior of the company weakens instead while the economies a country grows.

Keywords: Accounting Conservatism, Government Quality, Government Governance

JEL Classification: G39, M49