Accounting Conservatism and Bankruptcy Risk. (April 2022)

• Record Type: Journal Article
• Authors: Biddle, Gary C.; Ma, Mary L. Z.; Song, Frank M.
• Is Part Of: Journal of accounting, auditing & finance. Volume 37:Number 2(2022)
• Page Start: 295
• Page End: 323
• Publication Date: 2022-04
• Subjects: bankruptcy risk -- unconditional conservatism -- conditional conservatism -- cash enhancement -- earnings management mitigation; Accounting -- Periodicals; Auditing -- Periodicals; Finance -- Periodicals; 657
• DOI: 10.1177/0148558X20934244
• Languages: English
• ISSNs: 0148-558X

Abstract

For a large sample of U.S. listed firms, we find that unconditional and conditional accounting conservatism help lower bankruptcy risk. We further find that the mitigating effect of accounting conservatism on bankruptcy risk functions via cash enhancement and earnings management mitigation channels. This evidence is relevant to accounting standards setting, financial regulation, financial risk management, and helps explain conservatism's long-standing presence as a pervasive feature of financial accounting.