Accounting conservatism and firm performance during the COVID‐19 pandemic

Li Cui, Pamela Kent, Sujin Kim and Shan Li

Accounting and Finance, 2021, vol. 61, issue 4, 5543-5579

Abstract: We explore whether firms with more conditionally conservative accounting practices have higher stock returns than other firms during the Covid‐19 outbreak. We find evidence that Chinese firms listed on the Shanghai and Shenzhen Stock Exchanges applying more conditionally conservative reporting have lower declines in stock return performance during the Covid‐19 outbreak relative to other firms. We also find that the beneficial role of conditional conservatism is higher when firms have greater information asymmetry following the Covid‐19 pandemic. Our results are robust to various model specifications with four different measures of conservatism and an alternative return window.

Date: 2021
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