The benefits of conservative accounting to shareholders: Evidence from the financial crisis
AbstractUsing the recent financial crisis as a natural quasi-experiment, we test whether and to what extent conservative accounting affects shareholder value. We find that there is significantly positive and economically meaningful relation between conservatism and firm stock performance during the current crisis. The result holds for alternative measures of conservatism and is validated in a series of robustness checks. We further find that the relation between conservatism and firm value is more pronounced for firms with weaker corporate governance or higher information asymmetry. Overall, our paper complements LaFond and Watts (2008) by providing empirical evidence to their argument that conservatism is an efficient governance mechanism to mitigate information risk and control for agency problems, and that shareholders benefit from it.
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Bibliographic InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 8/2013.
Length: 44 pages
Date of creation: 20 May 2013
Date of revision:
accounting conservatism; shareholder value; financial crisis;
Find related papers by JEL classification:
- G01 - Financial Economics - - General - - - Financial Crises
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
- M48 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ACC-2013-07-15 (Accounting & Auditing)
- NEP-ALL-2013-07-15 (All new papers)
- NEP-CFN-2013-07-15 (Corporate Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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"The Credit Crisis: Conjectures about Causes and Remedies,"
American Economic Review,
American Economic Association, vol. 99(2), pages 606-10, May.
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- Francis, Jere R. & Martin, Xiumin, 2010. "Acquisition profitability and timely loss recognition," Journal of Accounting and Economics, Elsevier, vol. 49(1-2), pages 161-178, February.
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