Corporate Accounting Conservatism Research Articles

CEO early-life experience and corporate accounting conservatism: Insights from the socio-political context

Using China's Cultural Revolution as a shock to risk attitude, this study investigates the effect of CEOs' early-life experience on corporate accounting conservatism. We find that CEOs who experienced the Cultural Revolution in their early life are more risk-averse and conservative, and thereby are associated with a higher level of accounting conservatism. Such a positive relationship is more pronounced in provinces with higher political risks, e.g., where the provincial leadership changes and where high-profile provincial bureaucratic corruption cases occur. Also, the positive effect of CEOs' early-life experience is stronger in SOEs where CEOs' political career concerns are more pronounced. Additional analysis suggests that CEOs with early-life Cultural Revolution experience are more likely to adopt conservative accounting practice, such as increasing firm's provisions for liabilities and reducing accrual-based earnings management. Our results add new evidence to support the upper echelons theory and imprinting theory by highlighting the enduring impact of influential socio-political events during early life on the decision-making processes of CEOs.

Hide light under a bushel: the effect of local government debt on corporate accounting conservatism

Hide light under a bushel: the effect of local government debt on corporate accounting conservatism

Uncertainty of uncertainty and accounting conservatism

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.

The effect of government industrial policies on corporate accounting conservatism

This study examines whether and how firms adjust their accounting conservatism in response to government support through industrial policies, which reduce firms’ dependence on external financing from the capital market. Based on China’s unique economic programme called ‘Five-Year Plan’ from 1991 to 2015, we observe a decline in accounting conservatism among firms covered by government industrial policies. The decline is more pronounced in covered firms, which face higher ex-ante financial constraints, and in the subsample of firms which receive higher government support. These findings are robust to alternative specifications of accounting conservatism and policy timing. Our evidence implies that government industrial policies can have unintended consequences for corporate financial reporting.

Unemployment Risk and Accounting Conservatism

We examine the effect of labor unemployment risk on corporate accounting conservatism by exploring the relationship between unemployment insurance benefits and conservatism. We find that lower perceived unemployment risk (i.e. higher unemployment insurance benefits) is associated with lower conditional conservatism. The effect is more pronounced when employees are more exposed to unemployment risk and when the firms face higher bankruptcy or litigation risk.

CEOss Great Chinese Famine Experience and Accounting Conservatism: Evidence from China

This paper intends to link CEOs’ adverse early-life experiences to accounting policy choice, by investigating whether a CEO’s Great Chinese Famine experience impacted on corporate accounting conservatism. Our results show that companies whose CEOs had famine experience in their early life used more conservative accounting. We also find that the positive association between the CEO’s famine experience and accounting conservatism is moderated by firm ownership structure and environmental uncertainties. Additional tests suggest that the CEOs who experienced famine during their youth had a greater impact on accounting conservatism. By using the exogenous variation in local severity of the famine, we confirm the causal relationship between CEOs’ early-life famine experience and the level of accounting conservatism. Our study contributes to the accounting policy choice literature, and results are robust for several other robustness tests. We argue that the CEO will apply the risk sensitivity learned from the famine experience to the company’s accounting policy decisions to meet the obligations of the contracting parties and other stakeholders.