Corporate governance and the value relevance of accounting information : empirical evidence from South Africa

Abstract

PURPOSE :

The importance of corporate governance has grown dramatically over the last 20 years, owing to corporate fraud and management misconduct. Corporate governance reforms indicate that Regulators regard governance as an important means of establishing credible financial reporting. The purpose of this study was to determine whether internal corporate governance attributes and accounting information affect the value relevance––as proxied by the share price––of large profitable companies listed on the Johannesburg Stock Exchange (JSE). ORIGINALITY/VALUE :

To the best of the authors’ knowledge, this was the first study to examine the value relevance of accounting information by considering the impact of internal corporate governance attributes, since the commissioning of the King IV Report on Corporate Governance for South Africa. DESIGN/METHODOLOGY/APPROACH :

To determine the impact of corporate governance attributes on the value relevance of accounting information, the Generalised Linear Mixed Effects model was used to test the study hypothesis. The study sample consisted of 62 firms listed on the JSE between 1 January 2015 and 31 December 2018. Six variables were used to measure internal corporate governance attributes, namely board size, board independence, staggered board, internal board committees, board activity and board gender diversity. FINDINGS :

The findings indicated that the size of the board is value relevant and negatively affects share price. It could also be posited that net asset value per share (NAVPS) and earnings per share (EPS) assist in explaining the share price of JSE-listed firms. RESEARCH LIMITATIONS :

Three limitations have been identified. Firstly, the generalisability of the results may be limited on account of the small sample size and the unique setting of South Africa—a developing country. Secondly, the findings are confined to a distinct time-period, as they were generated from a sample taken over a four-year period. Lastly, the study examined the relationship between six internal corporate governance attributes. Alternative proxies may provide different results.