Antitakeover Legislation and Accounting Conservatism: New Evidence

51 Pages Posted: 19 Sep 2016

See all articles by Shijun Cheng

Shijun Cheng

Shanghai Advanced Institute of Finance (SAIF), Shanghai Jiao Tong University

Augustine Duru

American University - Kogod School of Business

Yijiang Zhao

American University - Kogod School of Business

Date Written: September 17, 2016

Abstract

We examine the effect of second-generation state antitakeover laws (ATLs) on accounting conservatism. We adopt a novel methodology that corrects for selection bias resulting from firms’ endogenous incorporation decision. Focusing on the period from when these ATLs became constitutional, we find a negative association between ATLs and conservatism. Our results suggest that ATLs decrease debtholder demand for conservatism by reducing agency costs of debt.

Keywords: State Antitakeover Laws, Accounting Conservatism, Debtholder Demand, Agency Costs of Debt

JEL Classification: M41, G3, K2

Suggested Citation

Cheng, Shijun and Duru, Augustine and Zhao, Yijiang, Antitakeover Legislation and Accounting Conservatism: New Evidence (September 17, 2016). Journal of Accounting and Public Policy, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2840289

Shijun Cheng

Shanghai Advanced Institute of Finance (SAIF), Shanghai Jiao Tong University ( email )

211 West Huaihai Road
Shanghai, 200030
China

Augustine Duru

American University - Kogod School of Business ( email )

4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States
202-885-1937 (Phone)
202-885-1992 (Fax)

Yijiang Zhao (Contact Author)

American University - Kogod School of Business ( email )

4400 Massachusetts Ave, NW
Washington, DC 20016
United States
202-885-1941 (Phone)

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