The Role of Accounting Conservatism in Mitigating Bondholder-Shareholder Conflicts over Dividend Policy and in Reducing Debt Costs

2002 ◽  
Vol 77 (4) ◽  
pp. 867-890 ◽  
Author(s):  
Anwer S. Ahmed ◽  
Bruce K. Billings ◽  
Richard M. Morton ◽  
Mary Stanford-Harris
Keyword(s):  
Dividend Policy ◽  
Lower Cost ◽  
Accounting Conservatism ◽  
Cost Of Debt ◽  
Conservative Accounting

Using both a market-based and an accrual-based measure of conservatism, we find that firms facing more severe conflicts over dividend policy tend to use more conservative accounting. Furthermore, we document that accounting conservatism is associated with a lower cost of debt after controlling for other determinants of firms' debt costs. Our collective evidence is consistent with the notion that accounting conservatism plays an important role in mitigating bondholder-shareholder conflicts over dividend policy, and in reducing firms' debt costs.

Accounting Conservatism and Firm Growth Financed by External Debt

2016 ◽  
Vol 32 (2) ◽  
pp. 182-208 ◽  
Author(s):  
Tony Kang ◽  
Gerald J. Lobo ◽  
Michael C. Wolfe
Keyword(s):  
Firm Growth ◽  
Positive Relationship ◽  
External Debt ◽  
Debt Maturity ◽  
Accounting Conservatism ◽  
Debt Contracting ◽  
Conservative Accounting ◽  
Agency Risk

Previous research shows that accounting conservatism facilitates debt contracting. Extending this line of literature, we examine whether the role of accounting conservatism in accessing external debt to attain firm growth varies with its maturity. We find evidence of a positive relationship between conservatism and debt maturity. We also observe a positive relationship between conservative accounting and future growth funded by all classes of debt, but this relation is due to long-term rather than short-term debt, which is less prone to agency risk. Furthermore, the associations between conservatism and debt maturity and conservatism and growth financed by long-term debt are mostly observed for firms with fewer anti-takeover provisions in place. These findings suggest that the demand for accounting conservatism is not uniform across different debt maturity horizons.

scholarly journals Accounting Conservatism And Firms’ Investment Decisions

2016 ◽  
Vol 32 (4) ◽  
pp. 1223-1236 ◽  
Author(s):  
Jungeun Cho ◽  
Won-Wook Choi
Keyword(s):  
Investment Decisions ◽  
Financial Statements ◽  
Accounting Conservatism ◽  
Financial Disclosure ◽  
Managerial Ownership ◽  
Conservative Accounting ◽  
Controlling Mechanism ◽  
The Impact ◽  
Timely Loss Recognition

This study examines the effectiveness of accounting conservatism in monitoring and controlling managers’ decision-making regarding opportunistic investment. We find that accounting conservatism is negatively associated with over-investment. This suggests that conservative accounting policies serve as an efficient monitoring and controlling mechanism for opportunistic investment decisions. We also find a stronger negative association between accounting conservatism and over-investment in firms with low managerial ownership and low ownership by foreign investors. The results of our analysis imply that the impact of timely loss recognition on over-investment is more significant in firms with high agency problems and weaker monitoring ability, and that this factor complements other governance mechanisms, thereby helping to control managers’ myopic investment decisions. We provide evidence for a role of financial disclosure in mitigating managers’ opportunistic over-investment decisions. Though managers’ over-investment decisions are motivated by private gain, which reduces firm performance and compromises investors’ welfare, limited research exists on the role of financial information in alleviating such behavior. We suggest that timely loss recognition in financial statements can serve as an effective monitoring mechanism to aid in control of managers’ myopic over-investment.

The Role of Accounting Conservatism in the Equity Market: Evidence from Seasoned Equity Offerings

2013 ◽  
Vol 88 (4) ◽  
pp. 1327-1356 ◽  
Author(s):  
Yongtae Kim ◽  
Siqi Li ◽  
Carrie Pan ◽  
Luo Zuo
Keyword(s):  
Negative Impact ◽  
Seasoned Equity Offerings ◽  
Equity Market ◽  
Accounting Conservatism ◽  
Data Availability ◽  
Equity Offerings ◽  
Market Reactions ◽  
Conservative Accounting ◽  
Financing Costs

ABSTRACT Using seasoned equity offerings (SEOs) from 1989 to 2008, we examine the role of accounting conservatism in the equity market. We find that issuers with a greater degree of conservatism experience fewer negative market reactions to SEO announcements. We further show that an important mechanism through which conservatism affects SEO announcement returns is by mitigating the negative impact of information asymmetry. Additional analyses suggest that our results are not driven by the effects of other forms of corporate governance. We also find evidence that conservative issuers continue to use conservative accounting after the equity offerings. Taken together, our findings are consistent with the argument that accounting conservatism reduces financing costs in SEOs. Data Availability: Data used in this study are available from public sources identified in the study.

scholarly journals Practice Of Accounting Conservatism In MBE Firms

2014 ◽  
Vol 30 (6) ◽  
pp. 1785 ◽  
Author(s):  
Sang Hyun Park ◽  
Jaywon Lee
Keyword(s):  
Earnings Management ◽  
Credit Rating ◽  
Earnings Forecasts ◽  
Analyst Forecasts ◽  
Accounting Conservatism ◽  
Cost Of Debt ◽  
Management Behavior ◽  
Conservative Accounting ◽  
Expectation Management

Managers sometimes manage earnings upward (i.e., engage in earnings management) or guide analyst forecasts downward (i.e., engage in expectation management) to meet or beat analysts earnings forecasts (MBE). Our results suggest that certain management behavior to achieve MBE is highly associated with firms level of accounting conservatism. In detail, we find that (1) the level of accounting conservatism decreases as firms achieve MBE in consecutive years, (2) engaging in earnings management to achieve MBE lowers firms level of conservatism, and (3) firms that achieve MBE in consecutive years (CMBE firms) whose credit rating had been elevated practice less conservative accounting implying that the MBE string itself might act as a substitute for conservative accounting in lowering firms cost of debt.

Sequential risk mitigation and the role of natural recovery in contaminated sediment projects

1998 ◽  
Vol 37 (6-7) ◽  
pp. 331-336 ◽  
Author(s):  
Stephen Garbaciak ◽  
Philip Spadaro ◽  
Todd Thornburg ◽  
Richard Fox
Keyword(s):  
Lower Cost ◽  
Risk Mitigation ◽  
Management Strategies ◽  
Source Control ◽  
Contaminated Sediment ◽  
Practical Observation ◽  
Ecosystem Recovery ◽  
Natural Recovery ◽  
Natural Processes

Sequential risk mitigation approaches the remediation of contaminated sediments in three phases designed to: (1) immediately reduce the ecological and human health risks associated with high levels of contamination, using methods such as the confinement or capping of high-risk materials; (2) reduce the risks associated with moderate levels of pollution to a minimum, on a less urgent schedule and at a lower cost; and (3) address areas of limited contamination through a combination of natural recovery and enhanced natural recovery (to aid or speed those natural processes). Natural recovery, the reduction of contaminant concentrations through natural processes, is based on the practical observation that overall ecosystem recovery appears to be largely a function of time. Sediment decomposition and the mixing of new and old sediments by bottom-dwelling organisms can both contribute to reduced contaminant concentrations. Knowledge of these processes--sediment decomposition, sediment mixing by bottom-dwelling organisms, and chemical residence time is critical in the development of appropriate ecosystem recovery and waste management strategies. Evaluations to support natural recovery predictions are designed to collect and evaluate information necessary to determine whether surface sediment chemical concentrations, with adequate source control, will reach the cleanup standards within a ten-year period.

scholarly journals Telaah Literatur Tentang Faktor-Faktor yang Mempengaruhi Konservatisme Akuntansi

2012 ◽  
Vol 8 (2) ◽  
Author(s):  
Lia Alfiah Dinanar Hati
Keyword(s):  
Conflict Of Interest ◽  
Financial Distress ◽  
Accounting Conservatism ◽  
Litigation Risk ◽  
Political Costs

This paper examine several factor that impact to accounting conservatism practice. Conservatism is commonly defined as the differential verifiability required for recognition of profits versus losses. Regardless of the different opinion about role of accounting conservatism, in fact, this principle is still in uses until now and be one of the dominant principle in accounting. Through this article the author do review of several previous studies about accounting conservatism at Indonesia and other country. From several review we conclude that accounting conservatism is affected by factors of contracting, litigation risk, political costs, regulations, financial distress and conflict of interest between shareholders and bondholders.

scholarly journals The Role of Debt Covenant in Moderating the Effects of Poilitical Cost on Accounting Conservatism

2020 ◽  
Vol 5 (9) ◽  
pp. 505-510
Author(s):  
Nur Fatwa Basar ◽  
Andi Hendro
Keyword(s):  
Financial Services ◽  
Stock Exchange ◽  
Secondary Data ◽  
Accounting Conservatism ◽  
Debt Covenants ◽  
Financial Reports ◽  
Political Costs ◽  
Political Cost ◽  
Debt Covenant

The purpose of this study was to analyze the direct effect of political cost and debt covenant on accounting conservatism. Besides, this study also analyzes the role of debt covenants as a moderator between the effect of political cost on accounting conservatism. The companies that are the samples are companies indexed on the IDX30 other than financial services companies and companies with non-rupiah financial reports. the data used is secondary data from the financial statements of 20 companies listed on the Indonesian stock exchange. data analysis using multiple linear regression and analysis of variance. The results showed that political cost directly affects accounting conservatism positively and significantly. whereas debt covenant does not have a direct significant effect on accounting conservatism. Besides, this study shows the role of debt covenants in strengthening the effect of political costs on accounting conservatism.

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