Citations (5)



Accounting Conservatism and Bankruptcy Risk

Gary C. Biddle

The University of Hong Kong

Mary L. Z. Ma

York University

Frank M. Song

The University of Hong Kong - School of Economics and Finance

January 1, 2016

This study examines the relation between accounting conservatism and bankruptcy risk using a large sample of U.S listed firms. We present evidence that unconditional and conditional conservatism generally are negatively associated with subsequent bankruptcy risk by creating cushions for bad times and reducing information asymmetry between borrower firms and debtholders. We identify two channels for the observed associations: Enhancing cash holdings and constraining earnings management. Using a two-stage analysis approach and using Sarbanes-Oxley Act (SOX) enactment in 2002 as exogenous shocks, we show that accounting conservatism does have a mitigating effect on bankruptcy risk.

Number of Pages in PDF File: 57

Keywords: bankruptcy risk; unconditional conservatism; conditional conservatism

JEL Classification: M41, G32, G33

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Date posted: June 6, 2010 ; Last revised: March 21, 2016

Suggested Citation

Biddle, Gary C. and Ma, Mary L. Z. and Song, Frank M., Accounting Conservatism and Bankruptcy Risk (January 1, 2016). 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. Z. Ma (Contact Author)
York University ( email )
4700 Keele Street
Toronto, Ontario M3J 1P3
Frank M. Song
The 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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