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Conference Paper: Accounting conservatism and bankruptcy risk

TitleAccounting conservatism and bankruptcy risk
Authors
KeywordsAccounting conservatism
Bankruptcy risk
Unconditional conservatism
Conditional conservatism
Issue Date2010
PublisherSocial Science Electronic Publishing, Inc. .
Citation
The 2011 Financial Accounting and Reporting Section Midyear Meeting by the American Accounting Association (AAA), Tampa, FL., 27-29 Jan 2011. How to Cite?
AbstractThis study examines the relation between accounting conservatism and bankruptcy risk using a large sample of U.S listed firms from fiscal year 1989 to 2007. We present evidence that unconditional and conditional conservatism generally mitigate subsequent bankruptcy risk by creating cushions for bad times and reducing information asymmetry about bad news. We identify two channels for accounting conservatism to mitigate bankruptcy risk: enhancing cash holdings and constraining earnings management. The effect of accounting conservatism does not change for firms with extreme distress and income smoothing, but weakens for firms with debt contracts referenced by credit default swaps (CDS), consistent with CDS lowering debtholder monitoring. Results are robust to reverse causality, relations between unconditional and conditional conservatism, and alternative measures of bankruptcy risk and accounting conservatism. These findings extend research on accounting conservatism, bankruptcy risk and debt contracting, and help inform debates regarding conservatism's role as a pervasive property and long-standing tenet of financial accounting.
DescriptionDate posted: June 6, 2010 ; Last revised: July 14, 2015
Persistent Identifierhttp://hdl.handle.net/10722/215489
SSRN

 

DC FieldValueLanguage
dc.contributor.authorBiddle, GC-
dc.contributor.authorKim, JB-
dc.contributor.authorMa, L-
dc.contributor.authorSong, FM-
dc.date.accessioned2015-08-21T13:27:38Z-
dc.date.available2015-08-21T13:27:38Z-
dc.date.issued2010-
dc.identifier.citationThe 2011 Financial Accounting and Reporting Section Midyear Meeting by the American Accounting Association (AAA), Tampa, FL., 27-29 Jan 2011.-
dc.identifier.urihttp://hdl.handle.net/10722/215489-
dc.descriptionDate posted: June 6, 2010 ; Last revised: July 14, 2015-
dc.description.abstractThis study examines the relation between accounting conservatism and bankruptcy risk using a large sample of U.S listed firms from fiscal year 1989 to 2007. We present evidence that unconditional and conditional conservatism generally mitigate subsequent bankruptcy risk by creating cushions for bad times and reducing information asymmetry about bad news. We identify two channels for accounting conservatism to mitigate bankruptcy risk: enhancing cash holdings and constraining earnings management. The effect of accounting conservatism does not change for firms with extreme distress and income smoothing, but weakens for firms with debt contracts referenced by credit default swaps (CDS), consistent with CDS lowering debtholder monitoring. Results are robust to reverse causality, relations between unconditional and conditional conservatism, and alternative measures of bankruptcy risk and accounting conservatism. These findings extend research on accounting conservatism, bankruptcy risk and debt contracting, and help inform debates regarding conservatism's role as a pervasive property and long-standing tenet of financial accounting.-
dc.languageeng-
dc.publisherSocial Science Electronic Publishing, Inc. .-
dc.relation.ispartofAmerican Accounting Association 2011 Financial Accounting and Reporting Section Midyear Meeting (Tampa)-
dc.rights© 2011 Social Science Electronic Publishing, Inc. All Rights Reserved. For personal & noncommercial use apply only to specific documents and use of specific SSRN-provided statistics and other information.-
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.subjectAccounting conservatism-
dc.subjectBankruptcy risk-
dc.subjectUnconditional conservatism-
dc.subjectConditional conservatism-
dc.titleAccounting conservatism and bankruptcy risk-
dc.typeConference_Paper-
dc.identifier.emailBiddle, GC: biddle@hku.hk-
dc.identifier.emailSong, FM: fmsong@hkucc.hku.hk-
dc.identifier.authorityBiddle, GC=rp00230-
dc.identifier.authoritySong, FM=rp01095-
dc.description.naturepostprint-
dc.identifier.doi10.2139/ssrn.1621272-
dc.identifier.hkuros247399-
dc.publisher.placeUnited States-
dc.identifier.ssrn1621272-

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