Abstract:

This objective of this paper is to analyze the impact of COVID-19 pandemic on financial reporting quality of firms and whether corporate governance has a mitigating effect. Using data from STOXX Europe 600 as proxy for European capital market, we find that the quality of companies’ financial reporting has been lower during the pandemic. In particular, companies have engaged in more accounting and real earnings management practices during the pandemic. We also show that a larger board helps to mitigate the negative impact of COVID-19 on financial reporting quality, whereas we find no mitigating effect for board independence, board diversity and CEO duality. This paper provides additional evidence on the impact of COVID-19 on financial reporting quality, focusing on the mitigating effect of corporate governance mechanisms in the European market. The results of this study provide useful suggestions for business practice, investors and policymakers.