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Publicly traded versus privately held: implications for conditional conservatism in bank accounting

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  • D. Craig Nichols

    (Cornell University)

  • James M. Wahlen

    (Indiana University)

  • Matthew M. Wieland

    (University of Georgia)

Abstract

Compared with privately held banks, publicly traded banks face greater agency costs because of greater separation of ownership and control but enjoy greater benefits from access to the equity capital market. Differences in control and capital market access influence public versus private banks’ accounting. We predict and find that public banks exhibit greater degrees of conditional conservatism (asymmetric timeliness of the recognition of losses versus gains in accounting income) than private banks. We predict and find that public banks recognize more timely earnings declines, less timely earnings increases, and larger and more timely loan losses. Although public ownership gives managers greater ability and incentive to exercise income-increasing accounting, our findings show that the demand for conservatism dominates within public banks and that the demand for conservatism is greater among public banks than private banks. Our results provide insights for accounting and finance academics, bank managers, auditors, and regulators concerning the effects of ownership structure on conditional conservatism in banks’ financial reporting.

Suggested Citation

  • D. Craig Nichols & James M. Wahlen & Matthew M. Wieland, 2009. "Publicly traded versus privately held: implications for conditional conservatism in bank accounting," Review of Accounting Studies, Springer, vol. 14(1), pages 88-122, March.
    • Handle: RePEc:spr:reaccs:v:14:y:2009:i:1:d:10.1007_s11142-008-9082-3
    DOI: 10.1007/s11142-008-9082-3
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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