A theoretical discourse on the impact of Corporate Governance on Financial Reporting quality

Abstract

Background – According to the UK Code on Caproate Governance that suggests that Corporate Governance is the means by with companies are directed and controlled. This paper considers the relationship between corporate governance and the quality of financial reporting. As such this consideration is essentially predicated on by the relationship that subsists between a company’s shareholders and management characteristics on the effectiveness of corporate governance and, hence, financial reporting quality. Aims - Accordingly, the aim of the paper seeks to reveal the principle dynamics that influence financial reporting quality from the corporate governance perspective vis-a-vis investor and management characteristics. As such the paper attempts to identify the salient features of corporate governance characteristics from prior research. Theory - The underlying theoretical framework adopted here is based on Agency theory (Berle & Means, 1932) that identifies and explains the various dynamics and contingencies at play in the markets based on the notion of separation of ownership from control. Methods - The methodological consideration adopted is primarily influenced by the nature of this current research. Consequently, a survey of extant literature is employed to provide insights in to the most important corporate governance mechanisms that have an impact on financial reporting quality. Findings and Conclusion - suggest that the nature of ownership characteristics i.e. dispersed, concentrated, institutional, short-term and long-term investors as well as managerial vested interests are important determinants on corporate governance and its impact on financial reporting quality.