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Conservatism and Debt

  • Beatty, Anne
  • Weber, Joseph
  • Yu, Jeff Jiewei

Despite the unquestionable influence of conservatism, disagreement remains about what economic demands lead to financial reporting conservatism. Research examining lenders' demands for reporting conservatism has been questioned for ignoring conservative contract modifications. We document that these modifications exist but are not ubiquitous. We find contract modifications are more likely when agency costs are higher and litigation, tax and equity demands for conservatism are lower. However, we find a positive association between unexplained reporting conservatism and contract modifications, suggesting contractual modifications alone do not fulfill lenders' demands for conservatism.

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Article provided by Elsevier in its journal Journal of Accounting and Economics.

Volume (Year): 45 (2008)
Issue (Month): 2-3 (August)
Pages: 154-174

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Handle: RePEc:eee:jaecon:v:45:y:2008:i:2-3:p:154-174
Contact details of provider: Web page: http://www.elsevier.com/locate/jae

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