Effect of Corporate Governance Mechanisms on Value Relevance of EPS and BV: Evidence from the Indian Tourism Industry

The impact of corporate governance on the valuation of Earnings Per Share (EPS) and Book Value is investigated in this article (BV). Differently from previous empirical studies in the area of corporate governance and value relevance of EPS and BV, this study investigates this impact within a unique setting of publicly listed tourism firms Using panel data from a selection of some Bombay Stock Exchange (BSE) listed companies from 2013 to 2015. The paper explored three aspects of corporate governance mechanisms: the board of directors (composition, size and diligence), the audit committee (composition, size and diligence) and foreign ownership. The study uses descriptive statistics, correlation and a multi-regression model to analyses the influence of corporate governance on the value relevance of EPS and BV for the Indian tourism industry. The results show that the interaction between corporate governance mechanisms and value relevance of BV has more impact on the share prices than EPS. Therefore, it is recommended that the Indian tourism industry focuses on corporate governance mechanisms to improve its value relevance of EPS, BV, and share prices.


Introduction
The quality of financial reporting is a significant concern for both established and future investors (Chalaki, Didar, & Riahinezhad, 2012). Several firms, such as Parmalat, WorldCom, Enron, etc., have been involved in accounting scams that have undermined investor trust in the consistency of financial reports and the management team. (Klai & Omri, 2011). The Failure of financial disclosure created the need to increase executive supervision by developing a robust corporate governance framework and increasing the integrity of financial information. (Petra, 2007;Firth et al., 2007;Brown and Caylor, 2006;Beekes and Brown, 2006;Karamaou and Vafeas, 2005). Despite the plenteous studies on the influence of corporate governance mechanisms on the quality of financial reporting in developed countries, there is little evidence about this topic in emerging markets, especially in India. This study investigates the influence of corporate governance on financial reporting quality in the context of India. Specifically, It empirically explores the impact of three corporate governance structures on financial reporting standards: the board of directors (composition, size and diligence), the audit committee (composition, size and diligence), and the audit quality mechanism. This study has employed four regression models from previous studies; Jones (1991), Dechow and Dichev (2002), McNichols (2002), and Collins and Kothari (1989) as proxies for the quality of financial reporting. In three ways, this study adds to current research. First, it discusses the effect of corporate governance on the quality of financial reporting in India, an emerging market. Second, it evaluates the proxies for financial reporting quality developed by other studies. Third, it assesses the financial reporting quality using both earning and accrual measures to provide an acceptable financial reporting quality measure for the Indian background. This paper is structured as follows; next, the literature review and development of hypotheses are discussed in the section. The research method is defined in section three. Results and interpretation are presented in section four, and guidelines and limitations are finalized in section five.

Literature review
One of the most critical tasks of corporate governance is to ensure the financial reporting quality process (Cohen, Krisnamoorthy and Wright, 2004). Several authors reported a relationship between some attributes of corporate governance and good quality of financial reporting. For example, Jiang et al. (2008) found that poor corporate governance is correlated with earning leadership to achieve analyst forecasts. Likewise, Fairuz (2009) concluded that there is a correlation between the low quality of financial reporting and poor corporate governance after regulating the impact of the political factor. The study also found that the link between the quality of financial reporting and the influence of political factors is mediated by corporate governance.
Several previous studies have looked into corporate governance in India (e.g., Almaqtari  Further, Bonetti, Magnan, & Parbonetti (2016) investigated the influence of firm and country-level governance on the quality of financial reporting in 14 European countries. They indicated that company and country-level governance are complementary to each other. Hence, countries characterized by a strong compliance, strong board-level monitoring firms demonstrate a higher level of financial reporting efficiency than weak board-level monitoring firms. Similarly, weak enforcement countries and strong board-level monitoring firms appear to increase the quality of financial reporting. ) suggested that there is no supporting evidence that the collective influence of corporate governance mechanisms has shifted from Saudi GAAP to IFRS to become more influential. The impact and relationship of the quality of financial reporting and corporate governance have been investigated in many countries and from different aspects. In Tunisia, Kali and Omri (2011) analysed Tunisian companies' financial reporting and corporate governance efficiency. They found that the quality of financial information is affected by governance mechanisms. More Specifically, the power block holders, foreigners, and families reduce the quality of financial reporting. Contradictory, the control by financial institutions and the State is linked with a good financial disclosure quality. In Iran, Kardan, Salehi, & Abdollahi (2016) noted that, based on the qualitative aspects of the Iranian Financial Accounting Standards Board's theoretical principles, a positive relationship exists between debt financing and the quality of financial reporting. However, a negative relationship is observed between debt financing and Centred on the Dechow and Dichev quality of financial reporting (2002) model. In Australia, Cheung, Evans, & Wright (2013) concluded that significance, reliability, comparability, and understandability could capture the notion of "quality". But in China, Habib & Jiang (2015) observed an opaque environment of financial reporting in China.
(Aqlan, S. A et al. 2020) reported that the size of the total board had a positive and substantial effect on return on assets, return on employed capital, benefit after tax identification and return on net worth. More specifically and concerning the relationship of the board of directors as one important mechanism of corporate governance with financial reporting quality, Chalaki, Didar & Riahinezhad (2012) and Chalaki et al., (2012) found that there is no relationship between the quality of financial reporting and some characteristics of corporate governance such as board size and independence, institutional and ownership concentration and there is no observed evidence to support a significant relationship between the quality of financial reporting from one side and audit size, firm size and firm age from the other side. Consistently, a large board size was found to reduce the content of incomes information and increase the earnings management of American firms (Vafeas, 2000), Singaporean firms (Ahmed et al., 2006) and New Zealandia firms (Bradbury et al., 2006). Tan, Xue, & Yu (2013) found that the proposals led to improved financial reporting quality passed relating to executive compensation and board of directors, especially for firms with lower financial reporting quality before voting.
In the context of the audit committee as one important corporate governance mechanisms, Chandar, Chang, & Zheng (2012) observed that firms that have a higher quality of financial reporting are associated with overlapping compensation and audit committees than those without overlapping compensation and audit committees. Similarly, Zheng (2008) The U-Shaped relationship between the quality of the financial reports and the magnitude of the audit committee is reversed.. Further, Baxter (2007) concluded that financial reporting quality improved in the year of audit committees formation and the earnings quality was significantly reduced measured using the modified Jones (1991) model. However, a comparison of the modified Jones (1991) model and Dechow and Dichev (2002), it is revealed that audit committees are effective at mitigating earnings management using a model of Dechow and Dichev (2002). But generally, the study found no significant association between the financial reporting quality and the audit committees' characteristics.  reported that some firms also have several variations from regulation requirements on corporate governance.  found that other corporate governance mechanisms have a lower impact on IFRS compliance and financial reporting quality than audit committee attributes.
In addition, Jensen and Meckling (1976) and Watts and Zimmerman (1983) argue that external audit can guarantee the integrity and accuracy of financial reports and serve as an efficient control mechanism for controlling management behaviours. It is commonly believed that organisations choose their audit quality standards when hiring Based on the review of literature discussed above and the objective outlined for this study; the hypotheses can be framed as follows:

3-1. Measuring of Depending Variable
There is no universally accepted metric for measuring the quality of financial reporting. Therefore, different proxies for financial reporting quality were utilised in previous studies.
Where; , Firm j is total current accruals in year t, CFit: Current-period operating cash flows, CFit-1: previous-period operating cash flows, CFit+1: next-period operating cash flows, ⁇ REVit: sales adjustment and PPEit: land, plant, and equipment stage. All of these variables are scaled by total lagged assets (TAit-1) The second model captures the revenue information content of Collins and Kothari (1989). A high level of the standard deviation of the residuals indicates low information quality. As follows, the model equation is: Where RETit: the current year's annual stock returns, EARNit: the current year's net income per share, EARNit: the variation in earnings per share between 't-1' and 't' year, NEGit: a binary variable Studies in Economics and Business Relations 5 equivalent to 1 if the company makes a loss and 0 otherwise and EARNit*NEGit: the relationship between the earnings per share and their sign.
The third one is the earnings quality proxy utilised is based on Jones' model (1991). This model calculates the discretionary per cent of total accruals, which is then used as a management metric for earnings. To compensate for changes in the firm's economic status and partition total accruals into discretionary and non-discretionary components, Jones (1991) used the following expectations model for total accruals:  (1995) showed that models of discretionary accruals usually produced low power tests of economically plausible magnitudes for earnings management. Therefore, an alternative model was also used to build proxies for earnings efficiency to try to address the critiques of the updated Jones model.
Where: ΔWCt =Δ Working capital in year t i.e. ΔAccounts receivable +ΔInventory -Δ Accounts payable -ΔTaxes payable + ΔOther assets (net); CFOt-1 = Cash flows from operations in year t -1; CFOt = Cash flows from operations in year t; CFOt+1 = Cash flows from operations year in year t + 1. The residuals capture the degree to which accruals map into cash flow realisations in past, present, and future cash flows from the equation: Dechow and Dichev (2002) measure accruals and profits quality at the corporate level., they employed the standard deviation of the residuals from their time series model. A higher residual standard deviation denotes a poorer match between accruals and cash flows, thus lowering quality accruals and earnings (Dechow and Dichev 2002). The poorer the quality of accruals and earnings, the larger the residual for each sample company, and vice versa.

3-2. Measurement of independent variables
Some attributes have been analyzed concerning corporate governance mechanisms, such as board independence, the board size, and board diligence. Further, independence of audit committee, audit committee size, the diligence of audit committee, and big 4 have been taken as important attributes and measures of corporate governance mechanisms. The following table (1) summarizes the measurement of the independent variables and the operational definition of the study:

3-3. Model Specification
A multiple regression analysis was used to measure the impact of corporate governance mechanisms on financial reporting quality. The following multiple regressions were constructed to investigate the relative contribution of each corporate governance trait in affecting financial reporting quality. To investigate the effects of corporate governance measures on FRQ, the study suggests the following model:

Sample
The study aims to study the effect of corporate governance mechanisms on the quality of financial reporting of selected listed Indian companies. A selection of 30 companies listed on the Bombay Stock Exchange (BSE) by market capitalisation was randomly selected from the top 100 companies. This analysis is based on secondary data collected from published annual reports from 2012 to 2016 of the listed companies. In addition, market prices for the company's shares were derived from the BSE website. Table 2 presents descriptive statistics for the study variables, including the minimum and maximum values of the variables, mean, and standard deviation. The size of the board of directors shows a minimum value of 4 members in the board against 25 as a maximum member in the board, with a mean of 11.28 and S.D of 2.77.Also, The independence of the board has a minimum value of 0.21 against 0.78 as a maximum value with a mean of .52 and high S.D which is 0.11. This indicates that board independence in some companies is less than 25%, and the number of independent members in the board is less than 25%. Similarly, board diligence has a minimum value of o. 44 Table 3 provides the Pearson correlation matrix. Among all independent variables, only board diligence shows high correlation with financial reporting quality. FRQ proxies, FRQ measured by MC Nicholas models, have the highest value (0.788) of correlation with FRQ against (0.39) for FRQ measured by Collions and Kaothari model. The other two proxies of FRQ; FRQDD and FRQJO have values of (0.61) and (0.62), respectively. Because the correlations between the independent variables are low, collinearity is unlikely to be a problem in our investigation.     ( 6 ) shows the independent sample t test. It presents comparisons of means based on the audit quality. Audit quality was considered a dummy variable of 1 if the company was audited by a big 4 or 0 otherwise. Accordingly, All variables and proxies splitted into two groups according to the dummy variable of the audit quality. The independent-sample t test results indicate significant differences in board composition, the board size, and audit committee diligence between companies audited by big4 and Non-big 4. But, the results reveal that there is no significant differences between companies audited by big4 and Non-big 4 in financial reporting quality measured by the aggregate measure. This leads the study to accept the Null hypothesis (H02).

Conclusion, Recommendation, and Direction for Future Research.
The impact of corporate governance mechanisms on India's quality of financial reporting was examined in this paper. Three aspects of corporate governance mechanisms were discussed in the study: board of directors (composition, size, and diligence), audit committee (composition, size, and diligence), and audit quality on the quality of financial reporting.. It employed secondary data of a sample of 30 listed companies from 2012 up to 2016. The study used four regression models from previous studies; Jones (1991), Dechow and Dichev (2002), McNichols (2002), and Collins and Kothari (1989) as proxies for financial reporting quality. The study found that corporate governance mechanisms contribute about 0.11 of the variability of the financial reporting quality. Among corporate governance mechanisms, only audit committee size and composition significantly impact financial reporting quality. Further, the study results revealed no significant difference in the impact of corporate governance mechanisms on FRQ in terms of companies audited by Big 4 or Non-Big4. It is recommended that models of financial reporting quality need to be developed, and corporate governance should be revised to improve its financial reporting quality and avoid earning management or any future scandals. This research is likely to have some limitations-the research sample and the time limit. The sample and the number of years an increase in future studies.