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Finance, Accounting and Business Analysis 
Volume 1 Issue 1, 2019 

 

 

 

Corporate Governance and Accounting Conservatism: The 

Moderating Role of Family Ownership  

 
Nishtiman Hashim Mohammed1, 

Ku Nor Izah Ku Ismail2, 

Noor Afza Amran3    
Tunku Puteri Intan Safinaz School of Accountancy1, Universiti Utara malaysia2&3 

 

Info Articles   Abstract 

 
 
History Article: 
Received 10 June 2018 
Accepted  15 December 2018 
Published  29 January 2019 

 This study objective is to investigate the influence of board characteristics 
and audit committee characteristics on accounting conservatism with 

respect to the influence of family ownership in Turkey. The findings 

explained that clients’ demand for accounting conservatism improved 
because of board characteristics (e.g. board size, independence & women on 

board) and the audit committee characteristics (e.g. audit committee 
independence and audit committee expertise). Hence, the family ownership 

undermines the impact of board characteristics and the audit committee 
characteristics to demand accounting conservatism, which will be 

unfavorable outcome for the minority shareholders. Thus, this study 

suggests that regulators should increase law enforcement to improve 
corporate governance in Turkey to accommodate the unique characteristics 

of family ownership and offer a protected environment for minority 
shareholders. 
 

 
Keywords :  
Corporate Governance, 
Accounting Conservatism,and 
Family Ownership.  

 

  

   

 
 
 
 
 
 

 
 Address Correspondence:   

E-mail : nishtimanmohammed87@gmail.com 

 

 



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INTRODUCTION 

Accounting conservatism represents one of the significant features of the quality of financial 

information. Conservatism is subjective in nature, and it is involved in most of accounting conceptual 

frameworks. Numerous studies have examined accounting conservatism in different financial and economic 

environments (Basu, 1997). In general, these studies focus on viewing conservatism as a practice of 

asymmetric recognition in which emphases on accounting norms with highest liabilities/expenses of lowest 

assets/revenues. Conservatism accounting could be affected by features of each environment such as the set 

of accounting standards adopted in the country. For instance, Ball, Robin and Wu (2003) revealed that 

accounting results of firms in countries with code law systems are less conservative than those of firms in 

common law legal systems. Recently, although some studies have argued that family ownership is associated 

with higher earnings quality and firm performance (Ali, Chen, & Radhakrishnan, 2007) accounting 

conservatism has become an important issue for family-controlled firms. Family firms certainly have less 

serious agency problems because of their reduced separation of ownership and management; however, they 

do have more serious agency problems between the controlling family and minority shareholders (type-II 

agency problem). Corporate governance mechanisms have received substantial scholarly attention as a way 

to enhance accounting conservatism. There are a considerable number of studies (Ahmed & Duellman, 

2007) which document that the effectiveness of corporate governance mechanisms affect accounting 

conservatism practices of widely held public firms, however there are relatively less studies (Ren, 2014) 

which investigates whether the measures of corporate governance have the same effect on the level of 

accounting conservatism when ownership is not widely dispersed, and in particular when ownership is 

concentrated in the hands of families. This study contributes to the existing research by searching whether 

family ownership moderates the effectiveness of corporate governance mechanisms in enhancing the level 

of accounting conservatism practices on a sample of Turkish firms. Turkey has an ideal setting to handle 

issues related to accounting conservatism in family firms due to the presence of large number of family firms 

(Mustafa, Che-Ahmad, & Chandren, 2018).  

 

LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT 

According to the positive accounting theory accounting conservatism can be exercised to control 

earnings management and reduce agency conflicts (Watts & Zimmerman, 1986). Accounting conservatism 

is one of the corporate governance mechanisms. That is due to its role in restricting the opportunistic 

behaviours of managers (Basu, 1997). Due to the benefits of accounting conservatism, firms with strong 

corporate governance are more likely to adopt high levels of conservatism practices. Corporate governance 

is an interrelated system; in a particular arrangement some practises of corporate governance mechanisms 

are more effective, leading to various patterns of corporate governance. In this regards, this study applies a 

contingent approach to investigate how family-owned firms influence board strategic behaviours in terms of 

adopting the levels of accounting conservatism. According to agency theory, internal corporate governance 

mechanisms such as board of directors and audit committee (Ahmed & Duellman, 2007) represent 

significant corporate governance mechanisms to limit the agency conflicts through improving the quality of 

reported earnings. This study is concentrating on family-owned businesses not only influence board 

incentives to monitor management, but also on board’s ability to demand accounting conservatism. The 

importance of clients’ incentive is addressed by agency theory while, the importance of clients’ ability to 

demand accounting conservatism is derived from resource dependency theory (Hillman & Dalziel, 2003). 

Based on the above arguments, these study hypotheses are:  
H1: There is a relationship between board size and accounting conservatism. 

H2: There is a relationship between board independence and accounting conservatism. 

H3: There is a relationship between women on board and accounting conservatism. 

H4: There is a relationship between audit committee independence and accounting conservatism. 

H5: There is a relationship between audit committee expertise and accounting conservatism. 

H6: There is a relationship between family ownership and accounting conservatism. 

H7: Family ownership moderates the relationship between board size and accounting conservatism. 

H8: Family ownership moderates the relationship between board independence and accounting conservatism. 

H9: Family ownership moderates the relationship between women on board and accounting conservatism. 

H10: Family ownership moderates the relationship between audit committee independence and accounting conservatism. 

H11: Family ownership moderates the relationship between audit committee expertise and accounting conservatism. 

 

  



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METHODS 

Turkish firms have been used as a population of this study. Financial institutions are excluded from 

the sample because they apply different principles of corporate governance (Zulkarnain, 2009). This study 

covers the five-year period starting from 2011 to 2015. The empirical analysis based on data collected from 

firms’ annual reports, complemented by DataStream. 

 

MULTIVARIATE ANALYSIS 

Table 5 shows that there is a negative relationship between BSIZE and ACCR at the rate of 0.081. 

Agency theory suggests that large corporate boards encourages directors’ domination and leads to 

complicate the process of decision making (Jensen, 1993). Hence, hypothesis H1 is supported. 

 

Table 5 

Accounting Conservatism Regression Models 

Items 

Model1 Model2(IVs*FOWN) 

Coefficient t-value Coefficient t-value 

BSIZE -0.081 -2.39** -0.061 -1.79* 

BID -0.098 1.13 0.157 1.84* 

WOB 0.170 2.62** 0.185 2.95** 

ACCI -0.062 -0.61 -0.125 -1.27 

ACCEX 0.297 4.55*** 0.276 4.33*** 

SOTI 0.452 4.11*** 0.416 3.79*** 

BSIZE*FOWN - - -0.035 -0.53 

BID*FOWN - - 0.009 0.12 

WOB*FOWN - - -0.223 -4.47*** 

ACCI*FOWN - - 0.028 0.42 

ACCEX*FOWN - - -0.169 -3.42** 

FSIZE -0.095 -3.37** -0.088 -3.17** 

LEVE 2.790 2.17** 1.720 1.36 

FAGE 0.007 2.65** 0.007 2.84** 

Wald Chi 2 105.88  173.05  

Prob<chi2 0.000  0.000  

Notes: * = significant at 10%, ** = significant at 5% and *** = significant at 1%.   

  

The influence of BID on ACCR is positive but not significant. Its effect is about 0.98%. The 

implication of this finding is that for every increase in BID by one unit, ACCR would rise by 0.98%. The 

finding consistent with that of (Ren, 2014). Family related directors as independent directors satisfy the 

definitions set by the regulators, but these families related who represent them are not truly independent. 

Hence, hypothesis H2 is rejected. WOB has positive influence on ACCR to the tune of 17%. This implies 

that for every single increase in WOB, the influence on the ACCR increase by 17% this align with that of 

(Abdullah & Ku Ismail, 2013). A 62% medium relationship exists between ACCI and ACCR. This 

relationship which is also a direct relationship shows that the more independent the audit committee, the 

lower the chances of selecting a high ACCR even though this relationship is insignificant (-0.61). this study 

result align with the result of Krishnan and Visvanathan (2008). Thus, hypothesis H4 is rejected. The finding 

displays that ACCEX have a 29% influence on ACCR. A study by Sultana and Mitchell (2015) show positive 

association between accounting and financial expertise of audit committee members and ACCR. Hence, 

hypothesis H5 is accepted. Family ownership has a positive contribution to the accruals (t= 4.11). Family 

owners are less likely to evolve in earning manipulation and this align with the result of (Ball, Robin, & Wu, 

2003). Therefore, hypothesis H6 is accepted. The influence of BSIZE on ACCR turns insignificant with the 

introduction of the FOWN (t = -0.53). Consistently, Lipton and Lorsch (1992) argued that large board of 

directors complicates decision making process as a consequence of tasks coordination problems. Thus, 

hypothesis H7 is rejected. Nevertheless, like the direct relationship that displays an insignificant negative 

relationship of about -0.98%, the moderated relationship gives a positive influence of about 0.09%. The 

insignificance of the moderating effect of BID is a concept deprived of its actual meaning. Firms nominate 

directors that fulfil the legal definition of independence but are close to the management and act in the 

interest of the controlling shareholders. The finding does not support Hypothesis H8. WOB show a 

significant (t = -4.47) impact on ACCR with the introducing FOWN. The most interesting is that the 

moderating influence of FOWN on WOB leads to a negative relationship. The same opinion is reported by 

Wu et al. (2016). Hence, hypothesis H9 is accepted. There is insignificant relationship between ACCI and 

ACCR in the presence of FOWN. However, the result is consistent with Krishnan and Visvsnsthsn (2008). 

The result doesn't support Hypothesis H10. Expertise directors have an adverse influence on ACCR in the 



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presence of FOWN (t = -3.42). Directors occupy a position in the audit committee might have low incentive 

to depend on ACCR in their monitoring role, because lawsuits against directors are much less common as 

a consequence of weak institutional setting such as Turkey compared to the United States (Fanto, 1998). 

The finding supports Hypothesis H11.  

 

CONCLUSION 

This study finding align with that of previous evidences that board characteristics and audit 

committee characteristics mitigate Type II Agency Problem through adopting high accounting 

conservatism. This study validates that family ownership undermines boards demand for accounting 

conservatism, a result which will be unfavourable to minority shareholders. To sum up, this paper 

contributes to providing a general understanding about board behaviour in engaging in monitoring function 

using accounting conservatism. Based on the aforementioned, it is worth for more empirical studies on 

corporate governance, accounting conservatism and family-owned firms in Turkey.  

  



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