The benefits of conservative accounting to shareholders: Evidence from the financial crisis

Arbeitspapier

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.

Object Details

• ISBN: 978-952-6699-09-7
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bank of Finland Research Discussion Papers ; No. 8/2013

Classification and Topics

• Classification: Wirtschaft ; Accounting ; Accounting and Auditing: Government Policy and Regulation ; Financial Crises
• Subject: Accounting conservatism ; Shareholder value ; Financial crisis

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Francis, Bill ; Hasan, Iftekhar ; Wu, Qiang
• Event: Veröffentlichung
• (who): Bank of Finland
• (where): Helsinki
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/212248
• Last update: 10.03.2025, 11:44 AM CET