Abstract

http://ssrn.com/abstract=1630377
 
 

References (31)



 
 

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The Market for Corporate Control and Accounting Conservatism


Jeffrey L. Callen


University of Toronto - Rotman School of Management

Yuyan Guan


City University of Hong Kong - Department of Accountancy

Jiaping Qiu


McMaster University - Michael G. DeGroote School of Business

June 20, 2010


Abstract:     
This study explores the governance role of accounting conservatism by investigating changes in financial reporting conservatism before and after the passage of state anti-takeover laws. The passage of these anti-takeover laws introduced an exogenous shock to the takeover threat faced by firms and constitutes a natural experiment for investigating the relation between financial reporting and governance free of endogeneity concerns. Employing a difference-in-differences methodology, we find that conditional accounting conservatism increased significantly after the passage of state anti-takeover legislation consistent with accounting conservatism acting as a substitute internal governance mechanism for the weakened external governance environment. We further conjecture and document that the resulting increase in conservatism is greater for firms operating in less competitive industries, firms with superior managers, and firms with lower institutional ownership. This evidence sheds light on how the financial reporting system interacts with corporate governance mechanisms in alleviating potential agency problems.

Number of Pages in PDF File: 40

Keywords: conditional conservatism, corporate governance, state anti-takeover legislation, difference-in-differences

JEL Classification: M41

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Date posted: June 27, 2010  

Suggested Citation

Callen, Jeffrey L. and Guan, Yuyan and Qiu, Jiaping, The Market for Corporate Control and Accounting Conservatism (June 20, 2010). Available at SSRN: http://ssrn.com/abstract=1630377 or http://dx.doi.org/10.2139/ssrn.1630377

Contact Information

Jeffrey L. Callen (Contact Author)
University of Toronto - Rotman School of Management ( email )
105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416-946-5641 (Phone)
416-971-3048 (Fax)
Yuyan Guan
City University of Hong Kong - Department of Accountancy ( email )
83 Tat Chee Avenue
Kowloon
Hong Kong
852-34427136 (Phone)
Jiaping Qiu
McMaster University - Michael G. DeGroote School of Business ( email )
1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada
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