Details

Autor(en) / Beteiligte

• García Lara, Juan Manuel
• García Osma, Beatriz
• Penalva, Fernando

Titel

Accounting conservatism and firm investment efficiency

Ist Teil von

• Journal of accounting & economics, 2016-02, Vol.61 (1), p.221-238

Ort / Verlag

Amsterdam: Elsevier B.V

Erscheinungsjahr

2016

Quelle

Alma/SFX Local Collection

Beschreibungen/Notizen

• We argue that conservatism improves investment efficiency. In particular, we predict that it resolves debt-equity conflicts, facilitating a firm׳s access to debt financing and limiting underinvestment. This permits the financing of prudent investments that otherwise might not be pursued. Our empirical results confirm these predictions. We find that more conservative firms invest more and issue more debt in settings prone to underinvestment and that these effects are more pronounced in firms characterized by greater information asymmetries. We also find that conservatism is associated with reduced overinvestment, even for opaque investments such as research and development. •Conservatism mitigates under-investment as it facilitates access to debt financing.•Conservatism facilitates financing projects that otherwise might not be pursued.•The effect of conservatism is more pronounced when information asymmetry is high.•Conservatism also reduces over-investment, even for low visibility investments.•The results are robust to controls for governance and accounting reporting quality.