Board Independence and Accounting Conservatism in Malaysian Companies

Abstract

This paper examines the relationship between board independence and accounting conservatism among Malaysian companies in year 2000 until 2012. What triggers the researchers to carry out this study is that studies found that the implementation of Malaysian Code of Corporate Governance to Malaysian companies has created a higher confidence level to investors and enhances the company's image. Further, one of the elements of good corporate governance is the board independence. However, few studies discuss on accounting conservatism. It is argued that accounting conservatism is an effective mechanism to address the agency problem. Based on the findings, interestingly, this study found that higher board independence does not align with higher conservatism. Instead, the independent non-executive directors do not actually have the power of ‘independence’, monitoring and advising the board of directors.