Managerial ownership and accounting conservatism

Ryan Lafond*, Sugata Roychowdhury

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

265 Scopus citations

Abstract

In this paper we examine the effect of managerial ownership on financial reporting conservatism. Separation of ownership and control gives rise to agency problems between managers and shareholders. Financial reporting conservatism is one potential mechanism to address these agency problems. We hypothesize that, as managerial ownership declines, the severity of agency problem increases, increasing the demand for conservatism. Consistent with our hypothesis, we find that conservatism as measured by the asymmetric timeliness of earnings declines with managerial ownership. The negative association between managerial ownership and asymmetric timeliness of earnings is robust to various controls, in particular, for the investment opportunity set. We thus provide evidence of a demand for conservatism from the firm's shareholders.

Original languageEnglish (US)
Pages (from-to)101-135
Number of pages35
JournalJournal of Accounting Research
Volume46
Issue number1
DOIs
StatePublished - Mar 2008
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Fingerprint

Dive into the research topics of 'Managerial ownership and accounting conservatism'. Together they form a unique fingerprint.

Cite this