Navigating Risk and Returns: Unraveling the Impact of Accounting Conservatism on Corporate Performance through Strategic Decision-Making

Accounting conservatism is a key aspect of financial reporting, prioritizing the prompt recognition of losses over the postponement of gains, which in turn influences corporate decision-making and performance. A few studies have examined the mediating effect of strategic decision-making, although existing literature has explored its direct impact on financial performance. Addressing this gap, this research aims to investigate how strategic decision-making affects the relationship between accounting conservatism and firm performance, thus providing a conceptual framework that aligns financial reporting styles with corporate strategy. Utilizing the narrative review technique, a systematic critical examination of relevant literature was conducted, synthesizing the results of prior studies. The study findings identified that conditional conservatism enhances financial transparency, minimizes managerial opportunism, and encourages prudent investment choices, ultimately improving corporate performance. However, excessive unconditional conservatism may limit strategic flexibility, leading to underinvestment and fewer growth opportunities. This study contributes theoretically by integrating agency theory and strategic management perspectives, highlighting the role of accounting reporting practices in decision-making processes and organizational outcomes. Practically, the findings offer significant implications for corporate managers, regulators, and investors, emphasizing the importance of a balanced approach to conservatism that considers both financial stability and strategic agility. Given the limitations of the narrative review method, further research is encouraged to utilize empirical techniques, including quantitative modeling and longitudinal studies, to test the proposed framework across various industries and economic contexts. By addressing these limitations, future studies can gain a deeper understanding of the complex relationship between accounting conservatism, strategic decision-making, and firm performance.