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Accounting Conservatism and Bankruptcy Risk

Gary C. Biddle

The University of Hong Kong

Mary L. Ma

York University

Frank M. Song

University of Hong Kong - School of Economics and Finance

October 7, 2013

This study presents evidence that unconditional and conditional conservatism help mitigate subsequent bankruptcy risk by enhancing cash, constraining earnings management, and lowering leverage. Our results are robust to income smoothing, extreme distress, reverse causality, relations between unconditional and conditional conservatism, and alternative measures of bankruptcy risk and conservatism. These findings extend research on accounting conservatism and bankruptcy risk, and help inform continuing debates regarding conservatism’s role as a pervasive property and longstanding tenet of financial accounting.

Number of Pages in PDF File: 49

Keywords: accounting conservatism, bankruptcy risk, unconditional conservatism, conditional conservatism

JEL Classification: M41, G32, G33

working papers series

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Date posted: June 6, 2010 ; Last revised: November 26, 2013

Suggested Citation

Biddle, Gary C. and Ma, Mary L. and Song, Frank M., Accounting Conservatism and Bankruptcy Risk (October 7, 2013). Available at SSRN: http://ssrn.com/abstract=1621272 or http://dx.doi.org/10.2139/ssrn.1621272

Contact Information

Gary C. Biddle
The University of Hong Kong ( email )
1213 KK Leung Building
Hong Kong
+852 3917-4388 (Phone)
+852 2858-5614 (Fax)
HOME PAGE: http://www.fbe.hku.hk/Aboutus/Staff_Detail.cfm?StaffID=315
Mary L. Ma (Contact Author)
York University ( email )
4700 Keele Street
Toronto, Ontario M3J 1P3
Frank M. Song
University of Hong Kong - School of Economics and Finance ( email )
8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong
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References:  203
Citations:  7

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