Conservative Financial Reporting and Resilience to the Financial Crisis

Taewoo Kim and Hyuk Shawn
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Taewoo Kim: Department of Accounting and Finance, Jack H. Brown College, California State University San Bernardino, San Bernardino, CA 92407, USA
Hyuk Shawn: College of Business, Keimyung University, Daegu 42601, Korea

Sustainability, 2022, vol. 14, issue 14, 1-11

Abstract: Given that the current economic hardship created by COVID-19 is still in progress, it is important to understand firms’ strategic responses to prior external shocks (e.g., the financial crisis in 2007 and 2008) and the relationship between their courses of action and post-shock firm performance. This study examines (1) whether firms’ practices in financial reporting are associated with the financial crisis and (2) whether firms with conservative financial reporting during the crisis exhibit better performance in post-crisis periods. Using the ordinary least squares (OLS) models and conservatism proxy, we find that firms are more conservative in financial reporting during the financial crisis. We also find that firms with a higher degree of accounting conservatism in the financial crisis outperform in the post-crisis periods. These findings have implications for practice by providing guidance on accounting conservatism for firms who want to develop resilience from financial setbacks due to economic shocks.

Keywords: conservatism in financial reporting; financial crisis; firm performance (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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