Contracting and Reporting Conservatism around a Change in Fiduciary Duties*

• 成果类型: Article
• 署名作者: Bens, Daniel; Huang, Sterling; Tan, Liang; Wongsunwai, Wan
• 署名单位: INSEAD Business School; Singapore Management University; Virginia Polytechnic Institute & State University; Chinese University of Hong Kong
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12607
• 发表日期: 2020
• 页码: 2472-2500
• 关键词: ACCOUNTING CONSERVATISM; director characteristics; corporate governance; AGENCY COSTS; debt; earnings; QUALITY; INFORMATION; accruals; BOARD

摘要

We exploit an influential 1991 Delaware court ruling to examine simultaneously two types of conservatism that play important roles in resolving creditor-owner agency conflicts: contracting conservatism and reporting conservatism. The ruling expanded managerial fiduciary duties in favor of creditors for Delaware-incorporated firms in the vicinity of insolvency. In those firms, following the ruling, debt contracts are less likely to include conservative adjustments to accounting numbers used for covenant compliance (i.e., contracting conservatism decreases), while public financial reporting becomes more conservative (i.e., reporting conservatism increases). The decrease in contracting conservatism is concentrated in firms that exhibit a greater increase in reporting conservatism, suggesting that reporting conservatism is more cost-effective in resolving agency conflicts. In addition, the substitution effect is more pronounced in firms facing greater business uncertainty and firms with greater board independence.