Accounting Conservatism and Bankruptcy Risk

55 Pages Posted: 6 Jun 2010 Last revised: 1 Jun 2020

See all articles by Gary C. Biddle

Gary C. Biddle

University of Melbourne - Faculty of Business and Economics; Columbia Business School; HKU Business School; London Business School

Mary L. Z. Ma

York University

Frank M. Song

The University of Hong Kong - School of Economics and Finance

Date Written: May 10, 2020

Abstract

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

Biddle, Gary C. and Ma, Mary L. Z. and Song, Frank M., Accounting Conservatism and Bankruptcy Risk (May 10, 2020). Journal of Accounting, Auditing and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1621272 or http://dx.doi.org/10.2139/ssrn.1621272

Gary C. Biddle

University of Melbourne - Faculty of Business and Economics ( email )

Level 8, Dept of Accounting
198 Berkeley Street, Carlton
Melbourne, Victoria 3010 3010
Australia
61-3-8344-9807 (Phone)
61-3-9349-2397 (Fax)

HOME PAGE: http://https://findanexpert.unimelb.edu.au/profile/774767-gary-biddle

Columbia Business School ( email )

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New York, NY 10027
United States

HKU Business School ( email )

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Hong Kong

London Business School ( email )

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London, London NW1 4SA
United Kingdom

Mary L. Z. Ma (Contact Author)

York University ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Frank M. Song

The University of Hong Kong - School of Economics and Finance ( email )

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong

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