The Role of Accounting Conservatism in the Equity Market: Evidence from Seasoned Equity Offerings
The Accounting Review, Forthcoming
47 Pages Posted: 4 Nov 2012 Last revised: 8 Jan 2015
Date Written: April 2013
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.
Keywords: accounting conservatism, seasoned equity offerings, announcement returns
JEL Classification: D82, G14, G32, M41
Suggested Citation: Suggested Citation
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