Accounting Conservatism and Bankruptcy Risk
55 Pages Posted: 6 Jun 2010 Last revised: 1 Jun 2020
Date Written: May 10, 2020
For a large sample of U.S. listed firms, we find that unconditional and conditional accounting conservatism help lower bankruptcy risk. We further find that the mitigating effect of accounting conservatism on bankruptcy risk functions via cash enhancement and earnings management mitigation channels. This evidence is relevant to accounting standards setting, financial regulation, financial risk management, and helps explain conservatism's longstanding presence as a pervasive feature of financial accounting.
Keywords: Conservative financial reporting; bankruptcy risk; unconditional conservatism; conditional conservatism; cash enhancement; earnings management mitigation
JEL Classification: M41, G32, G33
Suggested Citation: Suggested Citation