The Role of Accounting Conservatism in Firms’ Financial Decisions

• DOI: 10.2139/ssrn.1718494
• Publication Date: 2012-01-05T12:54:17Z
• Authors: Jimmy Lee
• Keywords: Conservatism

This paper investigates whether financial reporting conservatism is related to firms’ flexibility and their access capital. If facilitates monitoring governance by capital providers, they should be more willing extend financing increase However, because leads systematic understatement of net worth weakens the appearance balance sheet strength, it could also reduce study tests these two opposing views relationship between flexibility. Results indicate that firms with greater exhibit less in corporate liquidity management, debt or equity issuance decisions, sensitivity investments constraints payout policies. Overall, results suggest although enjoy lower contracting costs conservatively, forgo some future capital, this affects decisions.