Unreported descriptive statistics of selected variables used in equation (5) suggest
that, unsurprisingly, the total governance scores improved significantly from 2001 to
2004, with the mean score climbing to 61.5 out of 100 in 2001 to 74.9 in 2004.
Governance along other dimensions significantly improved as well. For example, the
mean score for the board composition and shareholder rights increased from 25.2 in
2001 to 31.2 in 2004, and from 17 in 2001 to 19.1 in 2004, respectively. Also, the
magnitude of PMDA was reduced from 2001 to 2004, with a median of 0.09 in 2001, to
0.071 in 2004.
The regression results for equation (5) are provided in Table V[9]. As shown in
column 4 of Table V, there is a negative association between abnormal accruals and the
interaction of board composition and the time dummy (20.0004, t ¼ 22:005) at the 5
percent level, suggesting that firms that increased their board independence
experienced a decrease in abnormal accruals. Similarly, in columns 6 and 8 in
Table V, the statistical negative associations between the accrual measure and the
interactions of governance and the time dummy indicate that firms with improved shareholder rights incurred less abnormal accruals. However, the change in
shareholding of managers and directors and disclosure in governance practice is not
associated with any change in abnormal accruals.