Non-Discretionary Conservatism: Evidence and Implications
University of California, Berkeley - Haas School of Business
Richard G. Sloan
University of California, Berkeley - Accounting Group
Boston University - Questrom School of Business
Journal of Accounting & Economics (JAE), Vol. 56, No. 2-3 (Supplement), 2013
A large body of accounting research finds that various contracting incentives lead managers to engage in conservative accounting practices. We extend existing research by modeling the impact of extant accounting rules on conservative accounting. Accounting rules typically require assets to be written down when their fair values drop sufficiently below their book values. We document evidence of the resulting non-discretionary conservatism and show that it appears to explain some of the results from previous research on contracting incentives.
Number of Pages in PDF File: 60
Keywords: Non-discretionary conservatism, conditional conservatism, book-to-market, asset impairment.
JEL Classification: M41, C23, D21, G32
Date posted: March 14, 2012 ; Last revised: January 7, 2014