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Lookup NU author(s): Dr Aly SalamaORCiD
This is the authors' accepted manuscript of an article that has been published in its final definitive form by Emerald Publishing Limited, 2019.
For re-use rights please refer to the publisher's terms and conditions.
Since 2005, wide-ranging concerns have been raised about misleading revenue recognition practices, especially during and after the 2008–2009 global financial crisis. There is a lack of research into the relationship between corporate governance (CG) mechanisms and premature revenue recognition (PRR). This paper uses a Generalised Least Squares (GLS) regression analysis of a sample of 854 FTSE 350 firm–year observations. Stubben (2010) discretionary revenue (DR) model is used to measure premature revenue recognition as it is considered less biased, better specified and more likely to reduce measurement error than accrual models.The results suggest that the size of audit committees plays an effective role in constraining PRR. Moreover, PRR is more likely to be curbed in the presence of small boards comprising a higher proportion of non-executive directors. Additional tests reveal that the relationship between board size and PRR is non-linear. The findings address the concerns of corporate firms, capital providers, UK regulators and standard-setters regarding misleading revenue recognition practices and should be considered while setting new governance reform recommendations in response to changing economic conditions. This is the first study that adopts the DR model of Stubben (2010) to capture PRR and examines its association with CG internal mechanisms. Moreover, the paper considers an important time period – from 2005 to 2013 – in which many significant developments took place.
Author(s): Al Okaily J, Dixon R, Salama A
Publication type: Article
Publication status: Published
Journal: International Journal of Managerial Finance
Year: 2019
Volume: 15
Issue: 1
Pages: 79-99
Online publication date: 09/01/2019
Acceptance date: 11/05/2018
Date deposited: 13/05/2018
ISSN (print): 1743-9132
ISSN (electronic): 1758-6569
Publisher: Emerald Publishing Limited
URL: https://doi.org/10.1108/IJMF-02-2018-0047
DOI: 10.1108/IJMF-02-2018-0047
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