Abstract
Using 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 a 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.
Original language | English |
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Pages (from-to) | 319-346 |
Number of pages | 28 |
Journal | Accounting Horizons |
Volume | 27 |
Issue number | 2 |
DOIs | |
Publication status | Published - Jun 2013 |
Externally published | Yes |
Keywords
- Accounting conservatism
- Financial crisis
- Shareholder value
ASJC Scopus subject areas
- Accounting