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Accounting conservatism and corporate governance: evidence from the Indian banking sector

This study examines the relationship between accounting conservatism and corporate governance in the Indian banking sector. Trust in banking system of a country requires presence of efficient corporate governance mechanism. Conservative accounting practices supplement corporate governance effectiveness as they are supposed to curtail opportunistic behaviour of managers, counters agency problems and promotes efficient contracting mechanisms. This study hypothesised that better governed banks shall be more conservative than the others. For the purpose of this study, Basu (1997) model is used for measuring conservatism and Sarkar et al. (2012) rankings as corporate governance measure. The results of this study confirm that better governed banks follow more conservative accounting practices.