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Managerial Ownership and Accounting Conservatism

Ryan LaFond


Sugata Roychowdhury

Boston College

February 2007

In this paper we examine the effect of managerial ownership on financial reporting conservatism. Separation of ownership and control gives rise to agency problems between managers and shareholders. Financial reporting conservatism is one potential mechanism to address these agency problems. We hypothesize that as managerial ownership declines, the severity of agency problem increases, increasing the demand for conservatism. Consistent with our hypothesis, we find that conservatism as measured by the asymmetric timeliness of earnings declines with managerial ownership. The negative association between managerial ownership and asymmetric timeliness of earnings is robust to various controls for the investment opportunity set. We thus provide evidence of a demand for conservatism from the firm's shareholders.

Number of Pages in PDF File: 55

Keywords: accounting conservatism, conservatism, managerial ownership, CEO ownership, agency costs, agency problems

JEL Classification: M41, M44, G32, G34

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Date posted: September 12, 2006  

Suggested Citation

LaFond, Ryan and Roychowdhury, Sugata, Managerial Ownership and Accounting Conservatism (February 2007). Available at SSRN: http://ssrn.com/abstract=929693 or http://dx.doi.org/10.2139/ssrn.929693

Contact Information

Ryan LaFond
BlackRock ( email )
400 Howard Street
San Francisco, CA 94105
United States
Sugata Roychowdhury (Contact Author)
Boston College ( email )
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617-552-1764 (Phone)
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References:  45
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