Exploring the Implications of the Managerial Choice of Accounting Conservatism Strategy on the Financial Growth of Saudi Banks

Salih Hamid Adam, Nasareldeen Hamed Ahmed Alnor (), Mozamil Awad Taha, Ebrahim Mohammed Al-Matari and Ibrahim Ahmed Elamin Eltahir
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Salih Hamid Adam: Accounting Department, College of Business Administration, Taif University, Taif 26311, Saudi Arabia
Nasareldeen Hamed Ahmed Alnor: Accounting Department, College of Business, Jouf University, Sakakah 72311, Saudi Arabia
Mozamil Awad Taha: Accounting Department, College of Business Administration, Taif University, Taif 26311, Saudi Arabia
Ebrahim Mohammed Al-Matari: Accounting Department, College of Business, Jouf University, Sakakah 72311, Saudi Arabia
Ibrahim Ahmed Elamin Eltahir: Department of Business Administration, Jouf University, Sakakah 72311, Saudi Arabia

JRFM, 2025, vol. 18, issue 7, 1-14

Abstract: Purpose: This study aims to provide a comprehensive and objective view to investigate whether the motives of strong financial managers to adopt an accounting conservatism strategy have significant effects on improving financial growth opportunities in the context of banks listed on the Saudi Stock Exchange, while knowing how this relationship is affected by litigation risks. Design/Methodology/Approach: Using data from Saudi financial databases, this study examines how litigation risk moderates the relationship between accounting conservatism and financial growth in Saudi listed banks. Basu’s (1997) model and accrual-based metrics measure conservatism, whereas assets, liabilities, and business age are used to measure financial growth. Litigation risk factors included previous lawsuits. Validity was ensured using fixed-effects regression and robustness tests. Findings: The study found that accounting conservatism has a mixed impact on financial growth, litigation risk moderates the relationship between conservatism and financial growth, and litigation risk has a positive impact on accounting conservatism. Practical Implications: Use a balanced strategy to maintain accounting conservatism, lower litigation risk while maintaining the accuracy of financial statements, take legal risk into account when evaluating the quality of financial reporting, increase transparency without impeding growth, create guidelines tailored to a particular bank, and fortify governance to reduce lawsuits while permitting long-term financial growth. Originality/Value: In order to bridge the gap between conservatism strategies and long-term financial stability in emerging economies, this study examines how managerial decisions in accounting conservatism affect the financial growth of Saudi banks, incorporating litigation risk as a moderating factor. It also contributes to financial policies, risk management, and regulations.

Keywords: litigation risk; accounting conservatism; financial growth; corporate governance; investor confidence; regulatory compliance; earnings management (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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