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Ceo Overconfidence And Stock Price Crash Risk, Jeong-Bon Kim, Zhang Wen, Liandong Zhang
Ceo Overconfidence And Stock Price Crash Risk, Jeong-Bon Kim, Zhang Wen, Liandong Zhang
Research Collection School Of Accountancy
This study examines the association between chief executive officer (CEO) overconfidence and future stock price crash risk. Overconfident managers overestimate the returns to their investment projects and misperceive negative net present value (NPV) projects as value creating. They also tend to ignore or explain away privately observed negative feedback. As a result, negative NPV projects are kept for too long and their bad performance accumulates, which can lead to stock price crashes. Using a large sample of firms for the period 1993–2010, we find that firms with overconfident CEOs have higher stock price crash risk than firms with nonoverconfident CEOs. …
Client Conservatism And Auditor-Client Contracting, Mark L. Defond, Chee Yeow Lim, Yoonseok Zang
Client Conservatism And Auditor-Client Contracting, Mark L. Defond, Chee Yeow Lim, Yoonseok Zang
Research Collection School Of Accountancy
We find that auditors of more conservative clients charge lower fees, issue fewer going concern opinions, and resign less frequently, consistent with more conservative clients imposing less engagement risk on their auditors. Using path analysis, we find evidence that both inherent risk and auditor business risk explain these associations. Also consistent with conservatism reducing auditor business risk, we find that client conservatism is associated with fewer lawsuits against auditors and with fewer client restatements. Taken together, our results are consistent with auditors viewing client conservatism as an important determinant of engagement risk that, in turn, affects auditor-client contracting decisions. Our …
Conservatism And Equity Ownership Of The Founding Family, Shuping Chen, Xia Chen, Qiang Cheng
Conservatism And Equity Ownership Of The Founding Family, Shuping Chen, Xia Chen, Qiang Cheng
Research Collection School Of Accountancy
We investigate the impact of founding family ownership on accounting conservatism. Family ownership is characterised by large, under-diversified equity stake and long investment horizon. These features give family owners both the incentives and the ability to implement conservative financial reporting to reduce legal liability and mitigate agency conflicts with other stakeholders. Since CEOs can have different incentives towards conservatism, we focus on ownership of non-CEO founding family members in our investigation. We find that conservatism increases with non-CEO family ownership, supporting our prediction. This relationship becomes insignificant in family firms with founders serving as CEOs, either due to founder CEOs' …
Bank Accounting Conservatism And Bank Loan Pricing, Chu Yeong Lim, Edward Lee, Asad Kausar, Martin Walker
Bank Accounting Conservatism And Bank Loan Pricing, Chu Yeong Lim, Edward Lee, Asad Kausar, Martin Walker
Research Collection School Of Accountancy
This paper studies the effects of bank accounting conservatism on the pricing of syndicated bank loans. We provide evidence that banks timelier in loss recognition charge higher spreads. We go onto consider what happens to the relationship between spreads and timeliness in loss recognition during the financial crisis. During the crisis, banks timelier in loss recognition increase their spreads to a lesser extent than banks less timely in loss recognition. These findings are broadly consistent with the argument that conditional accounting conservatism serves a governance role. The policy implication is that banks timelier in loss recognition exhibit more prudent and …
Internal Controls And Conditional Conservatism, Beng Wee Goh, Dan Li
Internal Controls And Conditional Conservatism, Beng Wee Goh, Dan Li
Research Collection School Of Accountancy
This study examines the relation between internal controls and conditional conservatism (“conservatism”), also referred to as timely loss recognition. Using a sample of firms that disclose material weaknesses (MWs) in internal controls under the Sarbanes-Oxley Act (SOX), we find a positive relation between internal control quality and conservatism. Specifically, firms with MWs exhibit lower conservatism than firms without such weaknesses. Further, firms that disclose MWs and subsequently remediate these weaknesses exhibit greater conservatism than firms that continue to have MWs. Overall, these results are consistent with strong internal controls acting as a mechanism that facilitates conservatism. Our study contributes to …