Research Discussion Papers, Bank of Finland
No 8/2013:
The benefits of conservative accounting to shareholders: Evidence from the financial crisis
Bill Francis ()
, Iftekhar Hasan ()
and Qiang Wu ()
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 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.
Keywords: accounting conservatism; shareholder value; financial crisis; (follow links to similar papers)
JEL-Codes: G01; M41; M48; (follow links to similar papers)
44 pages, May 20, 2013
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