The Role of Accounting Conservatism in the Decreasing Book Equity of U.S. Firms

Haowen Luo (), Bing Luo and S. Drew Peabody ()
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Haowen Luo: Doermer School of Business, Purdue University Fort Wayne, 2101 E. Coliseum Blvd, Neff Hall 350C, Fort Wayne, IN 46805, USA
Bing Luo: Lam Family College of Business, San Francisco State University, 1600 Holloway Ave., San Francisco, CA 94132, USA
S. Drew Peabody: Martha and Spencer Love School of Business, Elon University, 2075 Campus Box, Elon, NC 27244, USA

IJFS, 2025, vol. 13, issue 3, 1-30

Abstract: We offer a novel explanation for the widespread decline in U.S. firms’ reported book equity. We find that accounting conservatism is negatively associated with book equity, a result that is both economically and statistically significant, as well as robust to a variety of model specifications. Our findings suggest that the rise in accounting conservatism has significantly contributed to the declines in book equity over the decades.

Keywords: accounting conservatism; book equity; financial accounting (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2025
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