Asymmetric timely loss recognition, adverse shocks to external capital, and underinvestment: Evidence from the collapse of the junk bond market

Jaewoo Kim

Journal of Accounting and Economics, 2018, vol. 65, issue 1, 148-168

Abstract: Using the collapse of the junk bond market in the early 1990s as an exogenous shock to external capital, I document, in both difference-in-differences and triple difference designs, that speculative-grade firms that recognize economic losses in a timely manner experience a smaller reduction in investment following the collapse. The effect is more pronounced for speculative-grade firms with a low level of asset liquidation value. Using the excess bond premium as a proxy for fluctuations in the supply of capital, I also extend the generalizability of my findings to a broader sample of 84,421 firm-years over the 1972–2011 period.

Keywords: Accounting conservatism; Asymmetric timely loss recognition; Financial reporting conservatism; Financing frictions; Investment; Supply of capital; Shocks to external capital; Excess bond premium (search for similar items in EconPapers)
JEL-codes: G01 G31 G32 G33 M41 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:65:y:2018:i:1:p:148-168

DOI: 10.1016/j.jacceco.2017.11.010

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