Income Adjustments and Firm Performance During Economic Downturns: Systemic Versus Opportunistic Conservatism

Evans Adu and Abhijit Barua

Accounting and Finance, 2025, vol. 65, issue 3, 2821-2841

Abstract: This study examines how accounting conservatism affects income adjustments and firm performance during economic crisis periods, distinguishing between systemic conservatism versus opportunism. We find firms practicing conservative accounting in stable periods are less likely to make large income‐decreasing accounting adjustments during crises compared to non‐conservative firms. Conservative firms also show better earnings and market returns, indicating prudent preparation for future economic uncertainty. These benefits are driven by systemic conservatism, while opportunistically conservative firms are penalised. Our findings contribute to the longstanding discussions amongst standard‐setting bodies and other stakeholders about prudence, opportunism, and bias over the past four decades.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/acfi.70020

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:acctfi:v:65:y:2025:i:3:p:2821-2841

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0810-5391

Access Statistics for this article

Accounting and Finance is currently edited by Robert Faff

More articles in Accounting and Finance from Accounting and Finance Association of Australia and New Zealand Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().