Mediating Effects of Accounting Conservatism on The Relationship Between Corporate Governance and Cost of Capital

Abstract

The objectives of this research were to find the direct effect of corporate governance on cost of capital, the direct effect of corporate governance on accounting conservatism, and the indirect effect of corporate governance on cost of capital through the mediation role of accounting conservatism for listed companies in Thailand from 2018 to 2019. The corporate governance used in this research was based on the Corporate Governance Code for Listed Companies 2017, specifically principle 3 strengthen board effectiveness: board size, board independence, non-board duality, board expertise, board meeting, board attendance, and board compensation; principle 4 ensure effective CEO and people management: CEO compensation, director ownership, CEO ownership and family ownership; and principle 6 strengthen effectiveness risk management and internal control: audit committee size and audit committee with financial expertise. The samples were 906 firm-year observations. The statistical methods used to analyze the data were five-year rolling regression to calculate the level of accounting conservatism along with multiple linear regression to test the direct and the indirect effects of accounting conservatism on the relationship between corporate governance and cost of capital at a statistically significant level of .05. The results showed that board expertise, board attendance, board compensation, and CEO compensation reduced the company cost of capital. Board expertise, board meeting, board attendance, board compensation, CEO compensation, family ownership, and audit committee size increased the company accounting conservatism. Moreover, it was found that accounting conservatism served to pass the partially negative influence of board expertise, board compensation and CEO compensation on cost of capital.  While the accounting conservatism served to pass the completely negative influence of board attendance on cost of capital. These findings are important for investors and regulators by providing a better knowledge of corporate governance and their effect on accounting conservatism and cost of capital of the companies