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The Role of Accounting Conservatism in the Equity Market: Evidence from Seasoned Equity OfferingsYongtae KimSanta Clara University - Leavey School of Business Siqi LiSanta Clara University - Leavey School of Business Carrie PanSanta Clara University - Department of Finance Luo ZuoMassachusetts Institute of Technology (MIT) - Sloan School of Management April 2013 The Accounting Review, Forthcoming Abstract: Using seasoned equity offerings (SEOs) from 1989 to 2008, we examine the role of accounting conservatism in the equity market. We find that issuers with a greater degree of conservatism experience less negative market reactions to SEO announcements. We further show that an important mechanism through which conservatism affects SEO announcement returns is by mitigating the negative impact of information asymmetry. Additional analyses suggest that our results are not driven by the effects of other forms of corporate governance. We also find evidence that conservative issuers continue to use conservative accounting after the equity offerings. Taken together, our findings are consistent with the argument that accounting conservatism reduces financing costs in SEOs.
Number of Pages in PDF File: 47 Keywords: accounting conservatism, seasoned equity offerings, announcement returns JEL Classification: D82, G14, G32, M41 Accepted Paper SeriesDate posted: November 4, 2012 ; Last revised: April 23, 2013Suggested CitationContact Information
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