Non-Discretionary Conservatism: Evidence and Implications

60 Pages Posted: 14 Mar 2012 Last revised: 7 Jan 2014

Alastair Lawrence

University of California, Berkeley - Haas School of Business

Richard G. Sloan

University of California, Berkeley - Accounting Group

Estelle Sun

Boston University - Questrom School of Business

Date Written: October 2013

Abstract

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.

Keywords: Non-discretionary conservatism, conditional conservatism, book-to-market, asset impairment.

JEL Classification: M41, C23, D21, G32

Suggested Citation

Lawrence, Alastair and Sloan, Richard G. and Sun, Estelle, Non-Discretionary Conservatism: Evidence and Implications (October 2013). Journal of Accounting & Economics (JAE), Vol. 56, No. 2-3 (Supplement), 2013. Available at SSRN: https://ssrn.com/abstract=2016610 or http://dx.doi.org/10.2139/ssrn.2016610

Alastair Lawrence

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

HOME PAGE: http://www2.haas.berkeley.edu/Faculty/lawrence_alastair.aspx

Richard G. Sloan (Contact Author)

University of California, Berkeley - Accounting Group ( email )

Haas School of Business
Berkeley, CA 94720
United States

Estelle Yuan Sun

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States
1-617-353-2353 (Phone)

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