Uncertainty of uncertainty and accounting conservatism

Abstract

We investigate the impact of uncertainty of uncertainty (UOU) on corporate accounting conservatism, finding a positive association. Mechanism analysis suggests that under UOU, creditor demands for real information drives shifts toward accounting conservatism. Further analysis shows that the impact of UOU is more salient in non-SOEs, and firms with weak external monitoring mechanisms. Our study highlights that under uncertainty about levels of uncertainty, contract demand plays a significant role in corporate governance.