Journal article
Managerial myopia and the unintended real consequences of conditional conservatism
Journal of business finance & accounting, Vol.50(5-6), pp.1060-1097
05/2023
DOI: 10.1111/jbfa.12675
Appears in UI Libraries Support Open Access
Abstract
We examine whether the demand for conditional conservatism produces unintended real consequences that are exacerbated by managerial incentives to report higher earnings. We document a robust positive association between conditional conservatism and real earnings management (REM), particularly for firms whose CEOs face greater compensation incentives and capital market incentives to report higher earnings. Using mediation analyses, we find that conservatism has a negative indirect relation with future returns via REM over the next 1–3 years. In additional tests, we find that the relation between conservatism and REM is attenuated for firms with higher debt‐to‐equity, which suggests that debtholders moderate the negative relation between conditional conservative reporting and REM. Our findings suggest that, in contrast to its monitoring benefit, conditional conservatism can exacerbate managerial myopia, resulting in negative consequences for future firm value.
Details
- Title: Subtitle
- Managerial myopia and the unintended real consequences of conditional conservatism
- Creators
- Byung Hun Chung - Nanyang Technological UniversityDaniel W. Collins - University of Iowa, AccountingJane Z. Song - University of Georgia
- Resource Type
- Journal article
- Publication Details
- Journal of business finance & accounting, Vol.50(5-6), pp.1060-1097
- Publisher
- Wiley
- DOI
- 10.1111/jbfa.12675
- ISSN
- 0306-686X
- eISSN
- 1468-5957
- Number of pages
- 38
- Language
- English
- Date published
- 05/2023
- Academic Unit
- Accounting
- Record Identifier
- 9984741058102771
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