Accounting conservatism and firm performance during the COVID‐19 pandemic

Pamela Fae Kent · Sujin Kim · Shan Li

85 citations0/0 files storedAccounting and Finance

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Auditing, Earnings Management, Governance Accounting Theory and Financial Reporting COVID-19 Pandemic Impacts

Abstract

Abstract We explore whether firms with more conditionally conservative accounting practices have higher stock returns than other firms during the Covid‐19 outbreak. We find evidence that Chinese firms listed on the Shanghai and Shenzhen Stock Exchanges applying more conditionally conservative reporting have lower declines in stock return performance during the Covid‐19 outbreak relative to other firms. We also find that the beneficial role of conditional conservatism is higher when firms have greater information asymmetry following the Covid‐19 pandemic. Our results are robust to various model specifications with four different measures of conservatism and an alternative return window.

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References

1968An Empirical Evaluation of Accounting Income Numbers 1997The conservatism principle and the asymmetric timeliness of earnings1 2017Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility during the Financial Crisis 2009Why Do U.S. Firms Hold So Much More Cash than They Used To?2003Conservatism in Accounting Part I: Explanations and Implications 1999Earnings Management to Exceed Thresholds 1996Do Stock Prices Fully Reflect Information in Accruals and Cash Flows About Future Earnings?1994Accounting earnings and cash flows as measures of firm performance

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