Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212248 
Year of Publication: 
2013
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 8/2013
Publisher: 
Bank of Finland, Helsinki
Abstract: 
Using the recent financial crisis as a natural quasi-experiment, we test whether and to what extent conservative accounting affects shareholder value. We find that there is significantly positive and economically meaningful relation between conservatism and firm stock performance during the current crisis. The result holds for alternative measures of conservatism and is validated in a series of robustness checks. We further find that the relation between conservatism and firm value is more pronounced for firms with weaker corporate governance or higher information asymmetry. Overall, our paper complements LaFond and Watts (2008) by providing empirical evidence to their argument that conservatism is an efficient governance mechanism to mitigate information risk and control for agency problems, and that shareholders benefit from it.
Subjects: 
Accounting conservatism
Shareholder value
Financial crisis
JEL: 
M41
M48
G01
Persistent Identifier of the first edition: 
ISBN: 
978-952-6699-09-7
Document Type: 
Working Paper

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