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Working Paper: The Risk Management Role of Accounting Conservatism for Operating Cash Flows

TitleThe Risk Management Role of Accounting Conservatism for Operating Cash Flows
Authors
KeywordsAccounting conservatism
Risk management
Cash flow downside risk
Corporate hedging
Issue Date2013
Citation
Contemporary Accounting Research (Under Review) How to Cite?
AbstractThis study examines relations between accounting conservatism and the downside risk of operating cash flows (OCF) and finds both unconditional and conditional conservatism to be negatively associated with OCF downside risk measured by indicators of OCF falling below expectations, by OCF’s root lower partial moment and by OCF at risk, with several additional results. First, both unconditional and conditional conservatism enhance cash holdings and its upside potential, thus helping mitigate subsequent OCF downside risk. Second, both unconditional and conditional conservatism reduce the effects of customer bargaining power on OCF downside risk. Third, conditional conservatism increases hedge usage and unconditional conservatism substitutes for hedging in mitigating OCF downside risk. Finally, downside cash flow beta enhances unconditional and conditional conservatism and the mitigating effect of unconditional conservatism on OCF downside risk during economic downturns. These findings lend support to conservatism’s role as a risk management tool and are robust to alternative measures and various controls.
Persistent Identifierhttp://hdl.handle.net/10722/169281
SSRN

 

DC FieldValueLanguage
dc.contributor.authorBiddle, GCen_US
dc.contributor.authorMa, MLen_US
dc.contributor.authorSong, FMen_US
dc.date.accessioned2012-10-18T08:48:39Z-
dc.date.available2012-10-18T08:48:39Z-
dc.date.issued2013en_US
dc.identifier.citationContemporary Accounting Research (Under Review)en_US
dc.identifier.urihttp://hdl.handle.net/10722/169281-
dc.description.abstractThis study examines relations between accounting conservatism and the downside risk of operating cash flows (OCF) and finds both unconditional and conditional conservatism to be negatively associated with OCF downside risk measured by indicators of OCF falling below expectations, by OCF’s root lower partial moment and by OCF at risk, with several additional results. First, both unconditional and conditional conservatism enhance cash holdings and its upside potential, thus helping mitigate subsequent OCF downside risk. Second, both unconditional and conditional conservatism reduce the effects of customer bargaining power on OCF downside risk. Third, conditional conservatism increases hedge usage and unconditional conservatism substitutes for hedging in mitigating OCF downside risk. Finally, downside cash flow beta enhances unconditional and conditional conservatism and the mitigating effect of unconditional conservatism on OCF downside risk during economic downturns. These findings lend support to conservatism’s role as a risk management tool and are robust to alternative measures and various controls.-
dc.languageengen_US
dc.relation.ispartofContemporary Accounting Research (Under Review)en_US
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.subjectAccounting conservatism-
dc.subjectRisk management-
dc.subjectCash flow downside risk-
dc.subjectCorporate hedging-
dc.titleThe Risk Management Role of Accounting Conservatism for Operating Cash Flowsen_US
dc.typeWorking_Paperen_US
dc.identifier.emailBiddle, GC: biddle@hku.hken_US
dc.identifier.emailSong, FM: fmsong@econ.hku.hken_US
dc.identifier.authorityBiddle, GC=rp00230en_US
dc.identifier.authoritySong, FM=rp01095en_US
dc.description.naturepostprint-
dc.identifier.hkuros211883-
dc.identifier.spage1-
dc.identifier.epage47-
dc.identifier.ssrn1695629-

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