Litigation risk, information asymmetry and conditional conservatism

Litigation risk, information asymmetry and conditional conservatism This study examines whether a change in litigiousness explains variations in the relationship between information asymmetry and conditional conservatism. Prior literature documents a positive association between information asymmetry and conservatism. Prior literature also demonstrates that shareholder litigation concerns motivate managers and auditors to be conservative in preparing financial statements. In a more litigious environment, both managers and auditors have incentives to be more sensitive to expected litigation costs which increase with the level of information asymmetry. We hypothesize and find that higher levels of litigiousness enhance the association between information asymmetry and conservatism. This topic is important given the role of conservatism in accounting practice and the recent tendency for standard setters to view conservatism in a negative light. Prior research argues that conservatism is a favorable characteristic in equity markets because of its information role. This study attempts to gain a further understanding of what affects that role. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Litigation risk, information asymmetry and conditional conservatism

Loading next page...
 
/lp/springer_journal/litigation-risk-information-asymmetry-and-conditional-conservatism-N6AH9C9kj3
Publisher
Springer US
Copyright
Copyright © 2013 by Springer Science+Business Media New York
Subject
Economics / Management Science; Finance/Investment/Banking; Accounting/Auditing; Econometrics; Operations Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-013-0428-y
Publisher site
See Article on Publisher Site

Abstract

This study examines whether a change in litigiousness explains variations in the relationship between information asymmetry and conditional conservatism. Prior literature documents a positive association between information asymmetry and conservatism. Prior literature also demonstrates that shareholder litigation concerns motivate managers and auditors to be conservative in preparing financial statements. In a more litigious environment, both managers and auditors have incentives to be more sensitive to expected litigation costs which increase with the level of information asymmetry. We hypothesize and find that higher levels of litigiousness enhance the association between information asymmetry and conservatism. This topic is important given the role of conservatism in accounting practice and the recent tendency for standard setters to view conservatism in a negative light. Prior research argues that conservatism is a favorable characteristic in equity markets because of its information role. This study attempts to gain a further understanding of what affects that role.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Dec 28, 2013

References

  • Incentives versus standards: properties of accounting income in four East Asian countries
    Ball, RS; Robbin, A; Wu, JS
  • The conservatism principle and the asymmetric timeliness of earnings
    Basu, S
  • Financial reporting incentives for conservative accounting: the influence of legal and political institutions
    Bushman, RM; Piotroski, JD
  • An analysis of the economic consequences of the proportionate liability rule
    Chan, D; Pae, S
  • Managerial legal liability coverage and earnings conservatism
    Chung, HH; Wynn, JP
  • Mandatory IFRS reporting around the world: early evidence on the economic consequences
    Daske, H; Hail, L; Leuz, C; Verdi, R
  • Auditor changes and discretionary accruals
    DeFond, ML; Subramanyam, KR
  • Earnings management, stock issues, and shareholder lawsuits
    DuCharme, LL; Malatesta, PH; Sefcik, SE
  • One day in the life of a very common stock
    Easley, D; Kiefer, NM; O’Hara, M

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 12 million articles from more than
10,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Unlimited reading

Read as many articles as you need. Full articles with original layout, charts and figures. Read online, from anywhere.

Stay up to date

Keep up with your field with Personalized Recommendations and Follow Journals to get automatic updates.

Organize your research

It’s easy to organize your research with our built-in tools.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve Freelancer

DeepDyve Pro

Price
FREE
$49/month

$360/year
Save searches from
Google Scholar,
PubMed
Create lists to
organize your research
Export lists, citations
Read DeepDyve articles
Abstract access only
Unlimited access to over
18 million full-text articles
Print
20 pages/month
PDF Discount
20% off