Preventing and Detecting Accounting Irregularities: The Role of Corporate Governance

Abstract

This study examines the extent to which corporate governance acts as an efficient means of protecting investors against accounting irregularities, thus contributing to the literatures on governance, on fraudulent financial statements and on the public enforcement of securities laws by market authorities. It does so by empirically testing the prediction that the seriousness or level of non compliance of irregularities detected by market authorities is negatively associated with the quality of governance. For that purpose, a sample of 107 firms identified as reporting issuers in default by the Canadian Securities Administrators and the Ontario Securities Commission is matched with 107 other control firms based on industry, size, stock exchange membership and date of default.