Effect of accounting conservatism on corporate investment during the global financial crisis

Balakrishnan, K and Watts, R and Luo, Z (2016) Effect of accounting conservatism on corporate investment during the global financial crisis. Journal of Business Finance and Accounting, 43 (5-6). pp. 513-542. ISSN 0306-686X

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Abstract

This paper examines the effect of accounting conservatism on firm-level investment during the 2007–2008 global financial crisis. Using a differences-in-differences design, we find that firms with less conservative financial reporting experienced a sharper decline in investment activity following the onset of the crisis compared to firms with more conservative financial reporting. This relation is stronger for firms that were financially constrained, faced greater external financing needs, or had higher information asymmetry. We also find that more conservative firms experienced lower declines in both debt raising activity and stock performance. The evidence suggests that accounting conservatism reduces underinvestment in the presence of information frictions

Item Type: Article
Additional Information: © 2016 John Wiley & Sons Inc.
Subjects: I > Investment appraisal
F > Financial reporting
B > Business cycles
Subject Areas: Accounting
DOI: 10.1111/jbfa.12206
Date Deposited: 18 Jul 2016 13:20
Last Modified: 02 Nov 2016 15:28
URI: http://lbsresearch.london.edu/id/eprint/514

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