Download or read book Accounting Conservatism Quality of Accounting Information and Crash Risk of Stock Prices written by Dimitrios V. Kousenidis and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: From an information perspective, sources of risk should be reflected in accounting fundamentals. However, asymmetry in disclosure generated from a decrease in information flow to users of financial statements may lead to a stock price crash when the news is eventually disclosed. The present study examines the impact of a number of accounting and auditing attributes that have been found to improve reporting efficiency on the prediction of stock price crash risk. The results indicate a negative relation between conditional conservatism and future stock price crash risk, which supports evidence in the existing literature but more importantly provide new evidence by showing that unconditional conservatism is also negatively related to future stock price crash risk. In addition some evidence shows that the level of unconditional conservatism affects the relation between conditional conservatism and future stock price crash risk. On the other hand, auditing attributes do not seem to have predictive ability for stock price crash risk while in consistency with the literature the relation between lagged earnings opacity and stock price crash risk is positive. Taken together, the results imply that researchers should disentangle the effects of the two forms of conservatism when assessing the likelihood of a future stock price crash and that the beneficial role of conservatism in reducing stock-crash risk should not be overlooked.
Download or read book Accounting Conservatism and Stock Price Crash Risk written by Jeong-Bon Kim and published by . This book was released on 2014 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a large sample of U.S. firms during 1964-2007, we find that conditional conservatism is associated with a lower likelihood of a firm's future stock price crashes. This finding holds for multiple measures of conditional conservatism and crash risk and is robust to controlling for other known determinants of crash risk and firm fixed effects. Moreover, we find that the relation between conservatism and crash risk is more pronounced for firms with higher information asymmetry. Overall, our results are consistent with the notion that conditional conservatism limits managers' incentive and ability to overstate performance and hide bad news from investors, which, in turn, reduces stock price crash risk.
Download or read book Accounting Conservatism and the Stock Market written by Carlo D’Augusta and published by Springer Nature. This book was released on with total page 89 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Accounting Conservatism and Corporate Reporting in a High Information Asymmetry Environment written by Su Jin Kim and published by . This book was released on 2014 with total page 542 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis investigates whether Initial Public Offering (IPO) firms adopt a high degree of conservatism in response to investors' demand for high quality earnings and subsequently experience increased capital market benefits. The accounting literature suggests that the enforcement of timely loss recognition under a conservative reporting policy can mitigate managerial opportunistic behavior reducing information asymmetries between managers and outside investors (e.g., Watts 2002; LaFond & Watts 2008). This thesis hypothesizes that such benefits of accounting conservatism should be more pronounced for IPO firms because there is inherently high information asymmetry in the IPO market. In particular, financial reports are one of the primary information sources available for investors that provide information regarding a firm's past and expected future performance. As a result, the IPO environment provides an important research setting to investigate the capital market consequences of accounting conservatism. Based on a large sample of U.S. IPO firms over the period from 1990 to 2010, this thesis investigates whether the extent to which accounting conservatism adopted by IPO firms can predict: (i) the well-documented IPO market anomalies, IPO underpricing and IPO long-term stock return underperformance, (ii) the probability of seasoned equity issue (SEO) in the post-IPO market and the costs associated with the SEO and (iii) the longevity of IPO firms. The empirical findings of this thesis suggest that firms adopt a higher degree of conservatism prior to going public in response to high information asymmetry at the IPO and issuers adopting higher conservatism incur a lower indirect cost of going public through less underpricing. The results also suggest that IPO issuers adopting higher conservatism are less likely to reissue equity within five years of the IPO, indicating that these firms do not have short-term cash needs soon after the IPO. However, these firms are more likely to be able to issue their next equity financing on more favorable terms by experiencing less SEO underpricing and better announcement returns. Moreover, the results indicate that issuers adopting a higher degree of conservatism face less risk of failure and survive longer in the stock market. In particular, these firms are more likely to acquire another entity within five years of the IPO and their acquisition announcement returns are positively associated with the extent of conservatism adopted prior to going public. This thesis makes a significant contribution to the literature on conservatism by providing empirical evidence that: (i) IPO issuers adopting a higher degree of conservatism experience various benefits that the capital markets offer in response to less uncertainty and information asymmetry; and shows (ii) how conservatism can contribute to resolving information asymmetry problems in the IPO market. Specifically, this thesis has important implications for accounting standard setters, policy makers and regulators associated with the IPO market. Against the recent movements of the Financial Accounting Standards Board (FASB) toward fair value accounting, the evidence in this thesis suggests that, in the absence of conservatism, the information quality of financial statements may be jeopardized in the IPO environment, leading to higher information asymmetry between firm insiders and outside investors.
Download or read book Earnings Quality written by Patricia M. Dechow and published by Research Foundation of the Institute of Chartered Financial Analysts. This book was released on 2004-01-01 with total page 152 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Do Industry Specialist Auditors Influence Stock Price Crash Risk written by Ashok Robin and published by . This book was released on 2014 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: Francis (2011) calls for more research on “the effect of audit quality on economic outcomes.” We respond by examining whether high-quality auditors reduce stock price crash risk, an important consideration for stock investors. We argue that high-quality auditors reduce crash risk because of their information intermediary and corporate governance roles. Using a large sample of U.S. stocks spanning the period 1990-2009, we examine the issue empirically by using auditor industry specialization as our proxy for auditor quality. Our main finding is a statistically significant and negative association between auditor industry specialization and stock price crash risk, implying that high-quality auditors can directly benefit investors by reducing tail risk. In addition, we provide evidence that industry-specialist auditors moderate the effects of opacity, accounting conservatism, and tax avoidance on crash risk. Finally, our main finding of a negative relation between auditor industry specialization and crash risk is robust to using city-level industry specialization as an alternate measure.
Download or read book Accounting Conservatism and the Effects of Earning Quality on the Return of Assets and Stock Return written by MEHDI. SADIDI and published by . This book was released on 2018 with total page 14 pages. Available in PDF, EPUB and Kindle. Book excerpt: Decision making in the economic affairs needs information. The shortage of information causes the ambiguity of the decision making process. The financials provide some of the needed information of this process. The perception of the earnings as the most important information source of the company was being supported by empirical studies. The mentioned researches have shown that the decision makers anchor on the accounting earnings more than any other benchmarks. The purpose of the following research is to help investors and other users to be able to assess the degree of the effects of the conservatism on the earning quality and ROI. The results show that the earning quality index presented based on the conservatism index has the ability to describe some of the differences between return on the operational assets and the current stock returns from the current year to the next year. In other word, economic entities that use the conservative procedures are able to change the earning quality with making some changes in the investments of the operational assets.
Download or read book The Role of Accounting in the Stock Market Crash of 1929 written by Gadis J. Dillon and published by . This book was released on 1984 with total page 296 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Accounting Conservatism the Quality of Earnings and Stock Returns written by Stephen H. Penman and published by . This book was released on 2011 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: Quality of earnings questions arise when firms that practice conservative accounting change the level of their investment in net operating assets: increases in net operating assets create quot;hidden reserves,quot; depressing earnings, and decreases in investment release hidden reserves into earnings. This paper develops diagnostics that capture this joint effect of investment and conservative accounting and finds that the diagnostics forecast differences in future return on net operating assets from the current return on net operating assets. Moreover, the diagnostics forecast stock returns, indicating that the stock market does not appreciate how conservatism and investment combine to raise quality questions about reported earnings.
Download or read book CONSERVATISM THE COST OF EQUITY CAPITAL AN INFORMATION PERSPECTIVE written by and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The bias implied by conservatism in accounting and its impact on information risk in equity markets is the subject of considerable debate. On one hand, opponents of conservatism believe that any kind of biased information is actually misinformation and thus increases uncertainty. Perhaps most prominent among opponents of conservatism is the Financial Accounting Standards Board (FASB). The FASB contends that accounting information should be neutralfree from bias; a bias in favor of reporting either good or bad news is inconsistent with representational faithfulness and neutrality. On the other hand, proponents of conservatism point to incentives of management to manipulate financial statements by exaggerating apparent good news and/or hiding apparent bad news. Proponents argue that the bias implied by conservatism is necessary to offset the asymmetric reporting incentives of the firms management, and in so doing, conservatism allegedly improves information quality and reduces information risk. Finally, results of at least one recent study do not favor either position, suggesting that conservatism has no effect on information quality in equity market. This study finds that the bias implied by conservatism (bias in favor of reporting bad news) increases information risk in equity markets and consequently the cost of equity capital. Findings further indicate that sufficiently aggressive bias also increases information risk. That is, the markets most aggressive firms, those reporting with a bias opposite that implied by conservatism, can reduce information risk by moving toward more neutral, unbiased reporting. Furthermore, the general effects of biased reporting (increased information risk) are consistent across all levels of information asymmetry among equity investors. These findings are interpreted as supporting the position of the FASB that biased accounting information increases information risk.
Download or read book The world price of earnings opacity written by Uptal Bhattacharya and published by . This book was released on 2002 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Effects of Accounting Conservatism on Financial Statements and Financial Statement Users written by George W. Ruch and published by . This book was released on 2014 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: We review and analyze the accounting literature that examines the effects of accounting conservatism on financial statements and financial statement users. We begin by analyzing how conservatism affects the reported numbers on the financial statements. These studies primarily evaluate how conservatism affects earnings quality, including earnings persistence and the presence of earnings management. Next, we assess the effect of accounting conservatism on the users of the financial statements. We identify three primary users of the financial statements: (1) equity market users (2) debt market users and (3) corporate governance users. Within each of these categories we analyze the findings of prior research and explore unanswered research questions. By analyzing the effects of accounting conservatism from a diverse range of research topics, we inform the discussion on the costs and benefits of accounting conservatism.
Download or read book Accounting Conservatism and the Stock Market written by Carlo D'Augusta and published by Springer. This book was released on 2024-10-10 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book comprehensively examines accounting conservatism and its relationship with the stock market. Through a historical overview and a review of recent literature, it explores the evolution of conservatism research and the conceptual developments, measurement advancements, and empirical findings produced by academic scholars over the last decades. Additionally, it critically evaluates the applicability of conservatism models developed in the U.S. market to the Italian setting, offering a thorough analysis of their validity. Furthermore, the book presents novel empirical findings on conservatism's impact on the Italian stock market during the Covid-19 pandemic. This nuanced exploration offers valuable insights for academics, practitioners, and researchers seeking to understand the complexities of financial reporting practices in diverse market environments.
Download or read book Capitalizing China written by Joseph P. H. Fan and published by University of Chicago Press. This book was released on 2013 with total page 401 pages. Available in PDF, EPUB and Kindle. Book excerpt: La 4e de couverture indique : "Despite a vast accumulation of private capital, China is not embracing capitalism. Deceptively familiar capitalist features disguise the profoundly unfamiliar foundations of "market socialism with Chinese characteristics." The Chinese Communist Party (CCP), by controlling the career advancement of all senior personnel in all regulatory agencies, all state-owned enterprises (SOEs), and virtually all major financial institutions state-owned enterprises (SOEs), and senior Party positions in all but the smallest non-SOE enterprises, retains sole possession of Lenin's Commanding Heights. The chapters in this volume examine China's high savings rate, banking system, financial markets, financial regulations, corporate governance, and public finances; and consider policy alternatives the CCP might consider if its goal is China's elevation into the ranks of high income countries."
Download or read book Accounting Quality Stock Price Delay and Future Stock Returns written by Jeffrey L. Callen and published by . This book was released on 2016 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: In frictionless capital markets with complete information and rational investors, stock prices adjust to new information instantaneously and completely. However, a substantial body of research studies information imperfections such as asymmetric information and incomplete information. Information imperfections potentially hinder timely price discovery and are likely associated with delayed stock price adjustment to information. Our first research question therefore is whether the quality of accounting information (or “accounting quality”) is one such information imperfection that is associated with cross-sectional variation in stock price delay. We define accounting quality as the precision with which financial reports convey information to equity investors about the firm's expected cash flows. Poor accounting quality is likely associated with higher expected returns through uncertainty about stock valuation parameters and incomplete information. Our second research question therefore is whether the accounting quality component of price delay is associated with higher future stock returns. Consistent with our hypotheses, the results show that poor accounting quality is associated with delayed price adjustment and higher future stock returns. Thus, accounting quality plays a role in timely stock price discovery.
Download or read book Accounting Conservatism Earnings Quality and Stocks Mispricing written by Batool Abdeldayem and published by . This book was released on 2021 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Accounting Conservatism Cost of Capital and Fraudulent Financial Reporting written by Karin A. Petruska and published by . This book was released on 2008 with total page 274 pages. Available in PDF, EPUB and Kindle. Book excerpt: Accounting conservatism is often described as an equilibrium reaction used to moderate a decrease in value resulting from information asymmetry, uncertainty, or private information that occurs between investors and managers (LaFond and Watts, 2008). Although a qualitative characteristic of the FASB conceptual framework, standard setters have addressed concerns that accounting conservatism may lack neutrality and can lead to biased firm reporting that misrepresents economic conditions. Based on the theoretical framework of litigation proposed by Watts (2003), I address whether firms with higher thresholds of litigation risk are inclined to use higher levels of asymmetric timeliness as a choice in reducing information asymmetry. The motivation for this study is to extend the concept of accounting conservatism to a setting that investigates firms with egregious levels of litigation risk to determine if they exhibit higher levels of accounting conservatism. In terms of regulation, the Sarbanes-Oxley Act was enacted to increase transparency and disclosure in financial reporting and represents a more transparent shift in the information environment. I examine whether the asymmetric timeliness of earnings and firm-specific measures of accounting conservatism are more pronounced for alleged fraud firms in the post-SOX period, when litigation risk is expected to increase. In terms of standard setting, I examine if goodwill impairment is higher for firms accused of alleged fraudulent activity and whether these firms utilizing goodwill impairment maintain a higher degree of accounting conservatism. I investigate whether accounting conservatism, as a disclosure mechanism, can mitigate an increase in the cost of equity capital, even under the auspices of alleged fraud. Additionally, this study addresses the issue of whether there are contagion effects of asymmetric timeliness for firms in similar industries as the alleged fraud firms. The results suggest that the threat of litigation for alleged fraud firms invokes a higher degree of asymmetric timeliness surrounding the alleged fraud manipulation date in the financial statements vis-á-vis a control sample and is driven by the accrual component of earnings. The degree of asymmetric timeliness of earnings remains higher in the post-SOX period for alleged fraud firms. However, the relation between firm-specific measures of accounting conservatism and the post-SOX period vary depending on the measure used. Goodwill impairment is higher for firms accused of alleged fraudulent activity and the asymmetric timeliness of earnings is greater for alleged fraud firms that utilize goodwill impairment. The relation between accounting conservatism and the cost of equity capital varies as to the measure used to construct the cost of equity capital. This suggests that firms are not able to influence the cost of equity capital through a more conservative disclosure policy. Also, there do not appear to be industry contagion effects. The findings lend support as to the role of accounting conservatism and why the FASB should continue to monitor its increasing effects. The results can provide support to investors, analysts, and academicians in adjusting for the effects of conservatism and to auditors in understanding how accounting conservatism could be used by firms and the multiple ways that it can be measured.
