S&P 500 Membership and Managers’ Supply of Conservative Financial Reports

29 Pages Posted: 29 Jul 2016

See all articles by Gregory W. Martin

Gregory W. Martin

University of North Carolina (UNC) at Charlotte - Department of Accounting

Wayne B. Thomas

University of Oklahoma

Matthew M. Wieland

Miami University of Ohio - Department of Accountancy

Multiple version iconThere are 2 versions of this paper

Date Written: May/June 2016

Abstract

Our study is motivated by economic theory and the debate among practitioners, standard setters, and academics on the role of conditional conservatism in financial reporting. We find that managers provide less conditionally conservative financial reports after their firms are added to the Standard and Poor's (S&P) 500 index. S&P 500 membership is expected to reduce information asymmetry between managers and outside stakeholders due to an increased flow of public and private information. As a result, the contracting benefits of conservative accounting choices are reduced, and managers are less willing to provide conditionally conservative reports. In contrast, we find that managers provide more conditionally conservative financial reports after their firms are deleted from the index. Firms being deleted from the S&P 500 index probably incur an increase in information asymmetry. Overall, our results provide evidence consistent with conditional conservatism being a response by managers to the information needs of financial statements users.

Keywords: conservatism, S&P 500, information asymmetry, earnings quality, agency theory

Suggested Citation

Martin, Gregory W. and Thomas, Wayne B. and Wieland, Matthew M., S&P 500 Membership and Managers’ Supply of Conservative Financial Reports (May/June 2016). Journal of Business Finance & Accounting, Vol. 43, Issue 5-6, pp. 543-571, 2016, Available at SSRN: https://ssrn.com/abstract=2815728 or http://dx.doi.org/10.1111/jbfa.12200

Gregory W. Martin (Contact Author)

University of North Carolina (UNC) at Charlotte - Department of Accounting ( email )

9201 University City Blvd
Charlotte, NC 28223
United States

Wayne B. Thomas

University of Oklahoma ( email )

Michael F. Price College of Business,
307 W Brooks, Rm 212B
Norman, OK 73019
United States
405-325-5789 (Phone)
405-325-7348 (Fax)

Matthew M. Wieland

Miami University of Ohio - Department of Accountancy ( email )

310 Laws Hall
Oxford, OH 45056-1675
United States

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