Managerial Ownership and Accounting Conservatism

55 Pages Posted: 12 Sep 2006

Date Written: February 2007


In this paper we examine the effect of managerial ownership on financial reporting conservatism. Separation of ownership and control gives rise to agency problems between managers and shareholders. Financial reporting conservatism is one potential mechanism to address these agency problems. We hypothesize that as managerial ownership declines, the severity of agency problem increases, increasing the demand for conservatism. Consistent with our hypothesis, we find that conservatism as measured by the asymmetric timeliness of earnings declines with managerial ownership. The negative association between managerial ownership and asymmetric timeliness of earnings is robust to various controls for the investment opportunity set. We thus provide evidence of a demand for conservatism from the firm's shareholders.

Keywords: accounting conservatism, conservatism, managerial ownership, CEO ownership, agency costs, agency problems

JEL Classification: M41, M44, G32, G34

Suggested Citation

LaFond, Ryan and Roychowdhury, Sugata, Managerial Ownership and Accounting Conservatism (February 2007). Available at SSRN: or

Ryan LaFond

Algert Global, LLC ( email )

One Maritime Plaza
Suite 1525
San Francisco, CA 94111
United States

Sugata Roychowdhury (Contact Author)

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617-552-1764 (Phone)

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